Endogenous formation of security exchanges

Marta Faias () and Jaime Luque ()
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Marta Faias: Universidade Nova de Lisboa, FCT and CMA
Jaime Luque: University of Wisconsin - Madison

Economic Theory, 2017, vol. 64, issue 2, No 5, 355 pages

Abstract: Abstract We use club theory for the first time to provide a model of securities exchange (SX) formation. We think of a SX as a local public good that allows its traders to diversify risk by trading their securities with other SX members. In our two-stage equilibrium setting, traders evaluate SXs depending on their risk-sharing possibilities and, given these evaluations, choose the SX they want to join. Security prices can differ among SXs and traders may value SX memberships differently. We establish continuity properties in both stages and show that equilibrium exists for a generic set of economies.

Keywords: Endogenous securities exchange structure; Security prices; Risk sharing; Membership prices; Equilibrium; Club theory (search for similar items in EconPapers)
JEL-codes: D52 D53 G12 G14 G15 G18 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s00199-016-0989-9

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