Financial congestion

Deniz Okat

Journal of Financial Markets, 2024, vol. 71, issue C

Abstract: Individuals have an increased incentive to invest when they know that they can sell their investments whenever they need funds. However, this increase in investments can also lead to a reduction in aggregate returns, as it exacerbates the negative externalities that individuals impose on each other whenever they invest. As a result, setting up a financial market that allows individuals to trade their assets may reduce welfare as it can amplify these negative externalities and lead to suboptimal investment decisions.

Keywords: Financial markets; Welfare; Overinvestment; Braess paradox (search for similar items in EconPapers)
JEL-codes: D52 D53 D62 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:71:y:2024:i:c:s138641812400051x

DOI: 10.1016/j.finmar.2024.100933

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