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SUMMARY:Externalities as Arbitrage
DTSTART:20180112T103000
DTEND:20180112T120000
DTSTAMP:20260407T064401Z
UID:d0ac42225d98f832faef6eb49d46f8a9eaf31874fb148d517406da55
CATEGORIES:Conferences - Seminars
DESCRIPTION:Benjamin HEBERT (Stanford University\, Graduate School of Busi
 ness)\nRegulations on financial intermediaries can create apparent arbitra
 ge opportunities. Intermediaries are unable to fully exploit these opportu
 nities due to regulation\, and other agents are unable to exploit them at 
 all due to limited participation. Does the existence of arbitrage opportun
 ities imply that regulations are sub-optimal? No. I develop of general equ
 ilibrium model\, with financial intermediaries and limited participation b
 y other agents\, in which a constrained-efficient allocation can be implem
 ented with asset prices featuring arbitrage opportunities. Absent regulati
 on\, there would be no arbitrage\; however\, allocations would be constrai
 ned-inefficient\, due to pecuniary externalities and limited market partic
 ipation. Optimal policy creates arbitrage opportunities whose pattern acro
 ss states of the world reflects these externalities. From financial data a
 lone\, we can construct perceived externalities that would rationalize the
  pattern of arbitrage observed in the data. By examining these perceived e
 xternalities\, and comparing them to the stated goals of regulators\, as e
 mbodied in the scenarios of the stress tests\, we can ask whether regulati
 ons are having their intended effect. The answer\, in recent data\, is no.
LOCATION:UNIL\, Extranef\, room 126 https://planete.unil.ch/plan/?local=EX
 T-126
STATUS:CONFIRMED
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