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Emerging Markets in an Anxious Global Economy

Ana Fostel and John Geanakoplos ()
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John Geanakoplos: Cowles Foundation, Yale University, http://economics.yale.edu/people/john-geanakoplos

No 1646, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We provide a theory of pricing for emerging asset classes, like emerging markets, that are not yet mature enough to be attractive to the general public. Our model provides an explanation for the volatile access of emerging economies to international financial markets and for several stylized facts we identify in the data during the 1990's. We present a general equilibrium model with incomplete markets and endogenous collateral and an extension encompassing adverse selection. We show that contagion, flight to liquidity and issuance rationing can occur in equilibrium during what we call global anxious times.

Keywords: Margin; Leverage cycle; Liquidity preference; Collateral value; Informational volatility; Contagion; Portfolio effect; Flight to liquidity; Asymmetric information; Issuance rationing; Anxious economy; Emerging markets; High yield; Market closures (search for similar items in EconPapers)
JEL-codes: D52 F34 F36 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge
Date: 2008-03
Note: CFP 1233.
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Published in American Economic Review (2008), 98(4): 1211-1244

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