Strategic Financial Innovation in Segmented Markets
Posted: 5 Aug 2009
There are 3 versions of this paper
Strategic Financial Innovation in Segmented Markets
Review of Financial Studies, Forthcoming
Number of pages: 34
Posted: 11 Oct 2007
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104
Strategic Financial Innovation in Segmented Markets
Number of pages: 34
Posted: 27 Sep 2007
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85
Date Written: August 2009
Abstract
We study an equilibrium model with restricted investor participation in which strategic arbitrageurs reap profits by exploiting mispricings across different market segments. We endogenize the asset structure as the outcome of a security design game played by the arbitrageurs. The equilibrium asset structure depends realistically upon considerations such as depth and gains from trade. It is neither complete nor socially optimal in general; the degree of inefficiency depends upon the heterogeneity of investors.
Keywords: D52, G12
Suggested Citation: Suggested Citation
Rahi, Rohit and Zigrand, Jean-Pierre, Strategic Financial Innovation in Segmented Markets (August 2009). The Review of Financial Studies, Vol. 22, Issue 8, pp. 2941-2971, 2009, Available at SSRN: https://ssrn.com/abstract=1443053 or http://dx.doi.org/hhn061
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