Financial Innovation and Portfolio Risks
Name
Simsek_Financial innovation.pdf
Size
512 KB
Format
Adobe PDF
Checksum (MD5)
f2340f3be3cd0872805a989098f310ec
Author(s)
Simsek, Alp
Date Issued
May 2013
Journal
American Economic Review
Publisher
American Economic Association
Citation
Simsek, Alp. “Financial Innovation and Portfolio Risks.” American Economic Review 103, no. 3 (May 2013): 398-401. © 2013 the American Economic Association
Version
Final published version
Abstract
I illustrate the effect of financial innovation on portfolio risks by using an example with risk-sharing needs and belief disagreements. I consider two types of innovation: product innovation, formalized as an expansion of new financial assets; and process innovation, formalized as a reduction in transaction costs. When belief disagreements are large, both types of innovation increase portfolio risks. Moreover, endogenous financial innovation is directed towards speculative assets that increase portfolio risks.
MIT Department
Massachusetts Institute of Technology. Department of Economics
Terms of Use
Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use.
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DOI of Published Version
https://doi.org/10.1257/aer.103.3.398
