VGSF - WU Vienna - LC

Adrian Buss, INSEAD

Campus WU D3.0.225 11:00 - 12:30

Organizer VGSF

As part of the ser­ies of the "Fin­ance Re­search Sem­inar", VGSF wel­comes Ad­rian Buss from IN­SEAD to present his re­search pa­per.
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The Im­plic­a­tions of Fin­an­cial In­nov­a­tion for Cap­ital Mar­kets and House­hold Wel­fare

Our ob­ject­ive is to un­der­stand how fin­an­cial in­nov­a­tion af­fects in­vestors' op­timal as­set-al­loc­a­tion de­cisions and the eco­nomic mech­an­isms through which these de­cisions in­flu­ence fin­an­cial mar­kets, wel­fare, and wealth inequal­ity. We show that when some in­vestors, such as house­holds, are less con­fid­ent than other in­vestors about the dy­nam­ics of the new as­set made avail­able by fin­an­cial in­nov­a­tion, but learn over time, many "in­tu­it­ive" res­ults are re­versed: fin­an­cial in­nov­a­tion in­creases the re­turn volat­il­ity and risk premium of the new as­set along with volat­il­it­ies of in­vestors' port­fo­lios. Des­pite the in­crease in volat­il­it­ies, fin­an­cial in­nov­a­tion im­proves the wel­fare of all in­vestors but wor­sens wealth inequal­ity be­cause ex­per­i­enced in­vestors be­ne­fit more from it.

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