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Marginalizing Risk

32 Pages Posted: 8 Dec 2010 Last revised: 28 Dec 2014

Steven L. Schwarcz

Duke University School of Law

Date Written: May 31, 2012

Abstract

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.

Keywords: Market Risk, Market Failure, Investments

Suggested Citation

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

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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