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...

Market liquidity is typically characterized by a number of ad hoc metrics, such as depth, volume, bid-ask spreads etc. No general coherent denition seems to exist, and few attempts have been made to justify the existing metrics on welfare grounds. In this paper we propose a welfare-based...

Market liquidity is typically characterized by a number of ad hoc metrics, such as depth (or market impact), volume, intermediation costs (such as breadth) etc. No general coherent denition seems to exist, and few attempts have been made to justify the existing metrics on welfare grounds. In...

Financial market liquidity has become increasingly fragmented across multiple trading platforms. We propose an intuitive welfare-based market quality metric that can properly aggregate local market conditions across both securities and trading venues. Our analysis rests on a general equilibrium...

We analyse an equilibrium model with restricted investor participation in which strategic arbitrageurs play an innovation game and exploit the resulting mispricings by reaping trading profits. Since the equilibrium asset structure is not chosen by a social planner, it is chosen to maximize...