American Economic Review Vol. 103 No. 3 2013
Financial Innovation and Portfolio Risks
open access
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.
- DOI
- 10.1257/aer.103.3.398
- Volume
- 103
- Issue
- 3
- Pages
- 398-401
- Language
- en
- Sources
- bibtex:phds-export.bib crossref openalex