Strategic Financial Innovation in Segmented Markets

Jean-Pierre Zigrand () and Rohit Rahi ()

FMG Discussion Papers from Financial Markets Group

Abstract: We study a 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.Journal of Economic Literature classification numbers: G12, D52.Keywords: Security design, arbitrage, intermediation, market segmentation.

Date: 2007-09

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Related works:
Working Paper: Strategic Financial Innovation in Segmented Markets (2004)
Working Paper: Strategic Financial Innovation in Segmented Markets (2004)
Journal Article: Strategic Financial Innovation in Segmented Markets (2009)
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