Cross-ownership and portfolio choice
Journal
Journal of Economic Theory
Subject
Economics
Publishing details
Authors / Editors
Galeotti A;Ghiglino C
Biographies
Publication Year
2021
Abstract
Cross-ownership smooths firms' idiosyncratic shocks but affects their portfolio choice and, therefore, their risk-taking position. The classical intuition on the role of pooling risk in raising welfare is valid when ownership is evenly dispersed. However, when the ownership of some firms is concentrated in the hands of a few others, deeper integration leads to excessive risk-taking and volatility and, consequently, it results in lower aggregate welfare.
Keywords
Financial risk; Networks; Moral hazard
Available on ECCH
No