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SUMMARY:Financially Constrained Arbitrage and Cross-Market Contagion - Den
 is Gromb is Professor of Finance at INSEAD\, where he teaches Corporate Fi
 nance
DTSTART:20150430T120000Z
DTEND:20150430T130000Z
UID:TALK53987@talks.cam.ac.uk
CONTACT:Cerf Admin
DESCRIPTION:Abstract:\nWe propose a continuous time infinite horizon equil
 ibrium model of financial markets in which arbitrageurs have multiple valu
 able investment opportunities but face financial constraints. The investme
 nt opportunities\, heterogeneous along different dimensions\, are provided
  by pairs of\nsimilar assets trading at different prices in segmented mark
 ets. By exploiting these opportunities\, arbitrageurs alleviate the segmen
 tation of markets\, providing liquidity to other investors by intermediati
 ng their trades. We characterize the arbitrageurs’ optimal investment po
 licy\, and derive implications for market liquidity and asset prices. We s
 how that liquidity is smallest\, volatility is largest\, correlations betw
 een asset pairs with uncorrelated fundamentals are largest\, and correlati
 ons between asset pairs with highly correlated fundamentals are smallest f
 or intermediate levels of arbitrageur wealth.
LOCATION:Room W4.03 Judge Business School
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