 Heterogeneity risks and negative externalityShusong Ba, Lu Li, Wenli Huang and Chen Yang Economic Modelling, 2020, vol. 87, issue C, 401-415 Abstract: Diversified institutions coexist in financial markets with different degrees of exposure and contribution to the systemic risk. Therefore, the identification and regulation of systemically important institutions are of great significance. This paper investigates the negative externality in a model where the heterogeneity risks of institutions interact and alienate the value of each other, with the bankruptcy risk acting as the kernel factor. The market negative externality increases when the bankruptcy risk is high. Furthermore, as an institution with a minimum tail index, the “first domino” dominates the bankruptcy risk of the market. The first domino accumulation and phantasm are prone to cause systemic crises. The market bankruptcy index decreases as the non-first domino participates in the risk sharing. Finally, we empirically study implications of the above findings for adjusting the market structure and managing risks, in the Chinese financial markets. Keywords: Externality; Diversification; Systemic crisis; First domino (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:87:y:2020:i:c:p:401-415 DOI: 10.1016/j.econmod.2019.08.016 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.