Walrasian foundations for equilibria in segmented markets

We study a CAPM economy with segmented financial markets and competitive arbitrageurs who link these markets. We show that the equilibrium of the arbitraged economy is Walrasian in the sense that it coincides with the equilibrium of an appropriately defined competitive economy with no arbitrageurs. This characterization serves to clarify the role that arbitrageurs play in integrating markets

Equilibrium asset pricing with systemic risk

We provide an equilibrium multi-asset pricing model with micro- founded systemic risk and heterogeneous investors. Systemic risk arises due to excessive leverage and risk taking induced by free-riding externalities. Global risk-sensitive financial regulations are introduced with a view of tackling systemic risk, with Value-at-Risk a key component. The model suggests that risk-sensitive regulation can lower systemic risk in equilibrium, at the expense of poor risk-sharing, an increase in risk premia, higher and asymmetric asset volatility, lower liquidity, more comovement in prices, and the chance that markets may not clear