Financial innovation and financial fragility
By: Nicola Gennaioli, Andrei Shleifer, Robert W. Vishny
Contributors: Shleifer, Andrei; Vishny, Robert W. (Robert Ward); National Bureau of Economic Research
Series: NBER working paper series -- working paper 16068; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 16068.
Publisher: National Bureau of Economic Research
Published: 2010
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "We present a standard model of financial innovation, in which intermediaries engineer securities with cash flows that investors seek, but modify two assumptions.  First, investors (and possibly intermediaries) neglect certain unlikely risks.  Second, investors demand securities with safe cash flows.  Financial intermediaries cater to these preferences and beliefs by engineering securities perceived to be safe but exposed to neglected risks.  Because the risks are neglected, security issuance is excessive.  As investors eventually recognize these risks, they fly back to safety of traditional securities and markets become fragile, even without leverage, precisely because the volume of new claims is excessive"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 6/24/2010.

Includes bibliographical references.

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