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Financial Super-Markets: Size Matters for Asset Trade

Listed author(s):
  • Philippe Martin

    (CERAS-ENPC, Paris, & CEPR)

  • H=E9l=E8ne Rey=

    (London=20 School of Economics & CEPR)

This paper presents a new theoretical framework to analyze=20 financial markets in an international context. We build a two-country=20 macroeconomic model in which agents are risk averse, assets are imperfect=20 substitutes, the number of financial assets is endogenous, and cross-border= =20 asset trade entails transaction costs. We show that demand effects have=20 important implications for the link between market size, asset prices and=20 financial market development. These effects are consistent with the=20 existing empirical evidence. Due to co-ordination failures, the extent of=20 financial market incompleteness is inefficiently high. We also analyze the= =20 impact of domestic transaction costs and issuing costs on financial markets= =20 and returns.

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File URL: http://econwpa.repec.org/eps/if/papers/0012/0012001.pdf
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Paper provided by EconWPA in its series International Finance with number 0012001.

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Length: 28 pages
Date of creation: 09 Feb 2001
Handle: RePEc:wpa:wuwpif:0012001
Note: 28 pages, Acrobat .pdf
Contact details of provider: Web page: http://econwpa.repec.org

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