Type
Article
Titre
Financial super-markets: size matters for asset trade
Dans
Journal of International Economic Law
Éditeur
GB : Oxford University Press
Volume
64
Numéro
2
Pages
335 - 361 p.
ISSN
13693034
Mots clés
nternational financial flows, Monopolistic competition, Transaction costs, Endogenously incomplete markets, Home bias
Résumé
EN
Empirically, demand and market size effects play an important role for international trade in assets and the determination of asset prices. Financial integration decreases the cost of capital, asset prices increase with investors base and market size determines international financial flows. We present a two-country model with an endogenous number of financial assets, where the interaction of a risk diversification motive and market segmentation explains those facts. In our set up, an imperfectly competitive structure of financial markets emerges naturally and provides a new source for home bias in equity holdings. Due to co-ordination failures, the extent of financial market incompleteness is inefficiently high in equilibrium.

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