Asset Prices in Segmented and Integrated Markets

29 Pages Posted: 9 May 2018

See all articles by Paolo Guasoni

Paolo Guasoni

Dublin City University - School of Mathematical Sciences; Boston University - Department of Mathematics and Statistics

Kwok Chuen Wong

Dublin City University - School of Mathematical Sciences

Multiple version iconThere are 2 versions of this paper

Date Written: March 14, 2018

Abstract

This paper evaluates the effect of market integration on prices and welfare, in a model where two Lucas trees grow in separate regions with similar investors. We find equilibrium asset price dynamics and welfare both in segmentation, when each region holds its own asset and consumes its dividend, and in integration, when both regions trade both assets and consume both dividends. Integration always increases welfare. Asset prices may increase or decrease, depending on the time of integration, but decrease on average. Correlation in assets’ returns is zero or negative before integration, but significantly positive afterwards, explaining some effects commonly associated with financialization.

Keywords: asset pricing, integration, financialization, equilibrium

JEL Classification: G11, G12, G15

Suggested Citation

Guasoni, Paolo and Wong, Kwok Chuen, Asset Prices in Segmented and Integrated Markets (March 14, 2018). Michael J. Brennan Irish Finance Working Paper Series Research Paper No. 18-5, Available at SSRN: https://ssrn.com/abstract=3175581 or http://dx.doi.org/10.2139/ssrn.3175581

Paolo Guasoni (Contact Author)

Dublin City University - School of Mathematical Sciences ( email )

Dublin
Ireland

HOME PAGE: http://www.guasoni.com

Boston University - Department of Mathematics and Statistics ( email )

Boston, MA 02215
United States

Kwok Chuen Wong

Dublin City University - School of Mathematical Sciences ( email )

Dublin
Ireland

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
44
Abstract Views
635
PlumX Metrics