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Financial Industry Dynamics

Author

Listed:
  • Richard Lowery

    (University of Texas, Austin)

  • Tim Landvoigt

    (The University of Texas at Austin)

Abstract

To explain the sources of heterogeneity and fragility in the financial sector, we develop a dynamic model of entry, exit, and firm quality in the market for issuance and trading of complex financial securities. Firm quality has two dimensions; security production expertise, which creates a positive externality for other firms, and trading expertise, which allows firms to obtain more favorable prices when trading with other firms. We find that increasing the quality of securities, which in the model increases the scope for investment in trading expertise, leads to markets that exhibit greater concentration, firm heterogeneity, fragility, and price dispersion.

Suggested Citation

  • Richard Lowery & Tim Landvoigt, 2016. "Financial Industry Dynamics," 2016 Meeting Papers 1248, Society for Economic Dynamics.
    • Handle: RePEc:red:sed016:1248
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    References listed on IDEAS

    as
    1. Afonso, Gara, 2011. "Liquidity and congestion," Journal of Financial Intermediation, Elsevier, vol. 20(3), pages 324-360, July.
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    Cited by:

    1. Veldkamp, Laura & Farboodi, Maryam, 2018. "Long Run Growth of Financial Data Technology," CEPR Discussion Papers 13278, C.E.P.R. Discussion Papers.
    2. Maryam Farboodi & Laura Veldkamp, 2018. "Long Run Growth of Financial Data Technology," Working Papers 18-09, New York University, Leonard N. Stern School of Business, Department of Economics.

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