Publication Date: March 2008
We provide a theory of pricing for emerging asset classes, like emerging markets, that are not yet mature enough to be attractive to the general public. Our model provides an explanation for the volatile access of emerging economies to international ﬁnancial markets and for several stylized facts we identify in the data during the 1990’s. We present a general equilibrium model with incomplete markets and endogenous collateral and an extension encompassing adverse selection. We show that contagion, flight to liquidity and issuance rationing can occur in equilibrium during what we call global anxious times.
Margin, Leverage cycle, Liquidity preference, Collateral value, Informational volatility, Contagion, Portfolio eﬀect, Flight to liquidity, Asymmetric information, Issuance rationing, Anxious economy, Emerging markets, High yield, Market closures
JEL Classification Codes: D52, F34, F36, G15
See CFP: 1233