Berentsen, Aleksander and Huber, Samuel and Marchesiani, Alessandro. (2014) Degreasing the Wheels of Finance. International Economic Review, 55 (3). pp. 735-763.
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Official URL: http://edoc.unibas.ch/42847/
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Abstract
Can there be too much trading in financial markets? We construct a dynamic general equilibrium model, where agents face idiosyncratic liquidity shocks. A financial market allows agents to adjust their portfolio of liquid and illiquid assets in response to these shocks. The optimal policy is to restrict access to this market because portfolio choices exhibit a pecuniary externality: Agents do not take into account that by holding more of the liquid asset, they not only acquire additional insurance against these liquidity shocks, but also marginally increase the value of the liquid asset, which improves insurance for other market participants.
| Faculties and Departments: | 06 Faculty of Business and Economics > Departement Wirtschaftswissenschaften > Professuren Wirtschaftswissenschaften > Wirtschaftstheorie (Berentsen) |
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| UniBasel Contributors: | Berentsen, Aleksander |
| Item Type: | Article, refereed |
| Article Subtype: | Research Article |
| Publisher: | Wiley, University of Pennsylvania/Osaka University |
| ISSN: | 0020-6598 |
| e-ISSN: | 1468-2354 |
| Note: | Publication type according to Uni Basel Research Database: Journal article |
| Related URLs: | |
| Identification Number: |
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| Last Modified: | 22 Nov 2018 14:58 |
| Deposited On: | 12 Dec 2016 09:56 |
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