Externalities as Arbitrage

Benjamin Hebert

No 27953, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: How can we assess whether macro-prudential regulations are having their intended effects? If these regulations are optimal, their marginal benefit of addressing externalities should equal their marginal cost of distorting risk-sharing. These risk-sharing distortions will manifest as trading opportunities that intermediaries are unable to exploit. Focusing in particular on arbitrage opportunities, I construct an “externality-mimicking portfolio” whose returns track the externalities that would rationalize existing regulations as optimal. I conduct a revealed-preference exercise using this portfolio and test whether the recovered externalities are sensible. I find that the signs of existing CIP violations are inconsistent with optimal policy.

JEL-codes: E61 F31 G28 (search for similar items in EconPapers)
Date: 2020-10
New Economics Papers: this item is included in nep-ban and nep-ore
Note: AP IFM
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.nber.org/papers/w27953.pdf (application/pdf)

Related works:
Working Paper: Externalities as Arbitrage (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:27953

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w27953

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().