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Financial Super-Markets: Size Matters for Asset Trade

Author

Listed:
  • Martin, Philippe
  • Rey, Hélène
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 analyse 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.

Suggested Citation

  • Martin, Philippe & Rey, Hélène, 1999. "Financial Super-Markets: Size Matters for Asset Trade," CEPR Discussion Papers 2232, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:2232
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    More about this item

    Keywords

    Asset Trade; Incomplete Markets; International Macroeconomics; Transaction Costs;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • G1 - Financial Economics - - General Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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