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2022-12-19T04:14:22Z
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Impact of Financial Regulation and Innovation on Bubbles and Crashes due to Limited Arbitrage : Awareness Heterogeneity
Matsushima, Hitoshi
97173
335
Bubbles and Crashes
Limited Arbitrage
Awareness Heterogeneity
Leverage
Naked Credit Default Swap
Timing Games with Behavioral Types
JEL Classification Numbers: C720, C730, D820, G140
application/pdf
We examine the impact of financial regulation and innovation on bubbles and crashes due to limited arbitrage by modeling timing games among strategic arbitrageurs whose rationality is not commonly known. An unproductive company raises funds by issuing shares, and for purchasing shares, arbitrageurs borrow money from positive feedback traders. The key concept is awareness heterogeneity: positive feedback traders are unaware of euphoria, but arbitrageurs are aware of it. We show the impact of high leverage ratio depends on whether naked CDS is available, and the impact of naked CDS depends on growth balance between positive feedback traders'capital and loan.
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technical report
日本経済国際共同センター
2013-02
Discussion paper series. CIRJE-F
CIRJE-F-876
AA11450569
eng
http://www.cirje.e.u-tokyo.ac.jp/research/dp/2013/2013cf876ab.html
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