This paper investigates the pricing effects of financial innovation in an economy with endogenous participation and heterogeneous income risks. The introduction of non-redundant assets endogenously modifies the participation set, reduces the covariance between dividends and participants' consumption and thus leads to lower risk premia. In multisector economies, financial innovation spreads across markets through the diversified portfolio of new entrants, and has rich effects on the cross-section of expected returns. The price changes can also lead some investors to leave the markets and give rise to non-degenerate forms of participation turnover. The model is consistent with several features of financial markets over the past few decades: substantial innovation, higher participation, significant turnover in investor composition, improved risk management practices, a slight increase in real interest rates, and a reduction in risk premia.

Calvet L., Gonzalez-Eiras M., Sodini P. (2004). Financial innovation, market participation, and asset prices. JOURNAL OF FINANCIAL AND QUANTITATIVE ANALYSIS, 39(3), 431-459 [10.1017/s0022109000003975].

Financial innovation, market participation, and asset prices

Gonzalez-Eiras M.;
2004

Abstract

This paper investigates the pricing effects of financial innovation in an economy with endogenous participation and heterogeneous income risks. The introduction of non-redundant assets endogenously modifies the participation set, reduces the covariance between dividends and participants' consumption and thus leads to lower risk premia. In multisector economies, financial innovation spreads across markets through the diversified portfolio of new entrants, and has rich effects on the cross-section of expected returns. The price changes can also lead some investors to leave the markets and give rise to non-degenerate forms of participation turnover. The model is consistent with several features of financial markets over the past few decades: substantial innovation, higher participation, significant turnover in investor composition, improved risk management practices, a slight increase in real interest rates, and a reduction in risk premia.
2004
Calvet L., Gonzalez-Eiras M., Sodini P. (2004). Financial innovation, market participation, and asset prices. JOURNAL OF FINANCIAL AND QUANTITATIVE ANALYSIS, 39(3), 431-459 [10.1017/s0022109000003975].
Calvet L.; Gonzalez-Eiras M.; Sodini P.
File in questo prodotto:
Eventuali allegati, non sono esposti

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11585/875806
 Attenzione

Attenzione! I dati visualizzati non sono stati sottoposti a validazione da parte dell'ateneo

Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 30
  • ???jsp.display-item.citation.isi??? ND
social impact