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- W3125640674 abstract "We propose a unified model of limited market integration, asset-price determination, leveraging, and contagion. Investors and firms are located on a circle, and access to markets involves participation costs that increase with distance. Due to a complementarity between participation and leverage decisions, the equilibrium may exhibit diverse leverage and participation choices across investors, although investors are ex ante identical. Small changes in market-access costs can cause a change in the type of equilibrium, leading to discontinuous price changes, deleveraging, and portfolio-flow reversals. Moreover, the market is subject to contagion—an adverse shock to investors in some locations affects prices everywhere. (JEL D83, G11, G12, G32, G35)" @default.
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- W3125640674 date "2015-07-01" @default.
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- W3125640674 title "Financial Entanglement: A Theory of Incomplete Integration, Leverage, Crashes, and Contagion" @default.
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- W3125640674 doi "https://doi.org/10.1257/aer.20131076" @default.
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