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Marginalizing Risk

Steven L. Schwarcz

Duke University School of Law

May 31, 2012

Washington University Law Review, Vol. 89, No. 3, 2012

A major focus of finance is reducing risk on investments, a goal commonly achieved by dispersing the risk among numerous investors. Sometimes, however, risk dispersion can cause investors to underestimate and under-protect against risk. Risk can even be so widely dispersed that rational investors individually lack the incentive to monitor it. This Article examines the market failures resulting from risk dispersion and analyzes when government regulation may be necessary or appropriate to limit these market failures. The Article also examines how such regulation should be designed, including the extent to which it should limit risk dispersion in the first instance.

Number of Pages in PDF File: 32

Keywords: Market Risk, Market Failure, Investments

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Date posted: December 8, 2010 ; Last revised: December 28, 2014

Suggested Citation

Schwarcz, Steven L., Marginalizing Risk (May 31, 2012). Washington University Law Review, Vol. 89, No. 3, 2012. Available at SSRN: http://ssrn.com/abstract=1721606

Contact Information

Steven L. Schwarcz (Contact Author)
Duke University School of Law ( email )
210 Science Drive
Box 90362
Durham, NC 27708
United States
919-613-7060 (Phone)
919-613-7231 (Fax)
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