Financial Super-Markets: Size Matters for Asset Trade

Posted: 16 Nov 2000

See all articles by Philippe Martin

Philippe Martin

Ecole Nationale des Ponts et Chaussées (ENPC) - Centre d'Enseignement et de Recherche en Analyse Socio-Economique (CERAS); Centre for Economic Policy Research (CEPR)

Hélène Rey

London Business School; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: September 1999

Abstract

The paper presents a two-country macroeconomic model in which the number of financial assets is endogenous. Imperfect substitutability of assets and international transaction costs give a comparative advantage to large markets, because of demand effects. Agents have more incentives to undertake risky investments on those markets; they can also diversify risk at a lower cost. Prices of financial assets are higher in the large area because asset markets are broader. We also analyze the impact of domestic transaction costs and issuing costs on financial markets and returns. Our theory has important implications for the pattern of international trade in risky assets.

JEL Classification: F4, F12, G1, G12

Suggested Citation

Martin, Philippe and Rey, Helene, Financial Super-Markets: Size Matters for Asset Trade (September 1999). CEPR Working Paper No. 2232. Available at SSRN: https://ssrn.com/abstract=223069

Philippe Martin (Contact Author)

Ecole Nationale des Ponts et Chaussées (ENPC) - Centre d'Enseignement et de Recherche en Analyse Socio-Economique (CERAS) ( email )

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75007 Paris
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Centre for Economic Policy Research (CEPR)

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Helene Rey

London Business School ( email )

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London, London NW1 4SA
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

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United States

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