Emerging Markets In An Anxious Global Economy

The authors provide a theory of pricing for emerging asset classes, like emerging markets, that are not yet mature enough to be attractive to the general public. The model provides an explanation for the volatile access of emerging economies to international financial markets and for several stylized facts they identify in the data during the 1990's. They present a general equilibrium model with incomplete markets and endogenous collateral and an extension encompassing adverse selection. They show that contagion, flight to liquidity and issuance rationing can occur in equilibrium during what they call global anxious times.