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  3. American Economic Review
  4. May 2013
  5. Financial Innovation and Portfolio Risks

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Financial Innovation and Portfolio Risks

  • Alp Simsek
American Economic Review
vol. 103, no. 3, May 2013
(pp. 398–401)
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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.

Citation

Simsek, Alp. 2013. "Financial Innovation and Portfolio Risks." American Economic Review, 103 (3): 398–401. DOI: 10.1257/aer.103.3.398

Additional Materials

JEL Classification

  • G11 Portfolio Choice; Investment Decisions
  • G12 Asset Pricing; Trading volume; Bond Interest Rates