Endogenous restricted participation in general financial equilibrium

Existence of financial equilibria with endogenous short selling restrictions and real assets

“…The dependence of financial restrictions on prices is shared with the paper by Carosi et al (2009). In fact, the two papers bear some resemblances as well as crucial differences.…”

“…The literature on exogenously given restrictions on financial market participation is relatively large: for a recent survey, see Carosi et al (2009). Fewer contributions describing restrictions depending on endogenous variables are instead available.…”

“…In both cases, the framework is in fact given by the classical pure exchange, general equilibrium model, with two periods and a finite number of states, commodities, assets, and households, with the additional constraint that asset demand is restricted to belong to a household-specific portfolio set. In the paper by Carosi et al (2009), however, only numeraire assets are considered, and the class of restrictions therein does not include our short-selling constraints. In fact the present specification of portfolio sets implies, in particular, that the participation in the asset markets of each household depends on her demand of each asset, while in Carosi et al (2009), it is instead required that, for each asset, there is a household whose participation does not depend on the demand of that asset.…”

General Equilibrium with Endogenous Trading Constraints

“…6 Indeed, a collateralized contract j can be characterized by a pair (C j , (D s,j (p s )) s∈S ), where C j = (C j,l ) l∈L ∈ R L + \ {0} is the collateral 5 Faias and Luque (2013) address an equilibrium model with exchanges where individual preferences satisfy the kind of impatience condition imposed by Seghir and Torres-Martínez (2011). Different to the example above, they allow cross listing and transactions fees.…”

“…Different to the example above, they allow cross listing and transactions fees. 6 In the absence of payment enforcement mechanisms over collateral repossession, the monotonicity of preferences guarantees that borrowers of a collateralized loan always deliver the minimum between promises and collateral values.…”