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Markets for Financial Innovation / Ana Babus, Kinda Cheryl Hachem.
- Format:
- Book
- Author/Creator:
- Babus, Ana.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w25477.
- NBER working paper series no. w25477
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2019.
- Summary:
- We develop a theory of financial innovation in which both market structure and the payoffs of the claims being traded are determined endogenously. Intermediaries use the cash flows of an underlying asset to design securities for investors. Demand for securities arises as investors choose markets then trade using strategies represented by quantity-price schedules. We show that intermediaries create increasingly riskier asset-backed securities when facing deeper markets in which investors trade more competitively. In turn, investors elicit less risky securities when they choose thinner markets, revealing a novel role for market fragmentation in the creation of safer securities.
- Notes:
- Print version record
- January 2019.
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