Asset Liquidity and Indivisibility

Han Han (hanhan.steven@gmail.com), Benoit Julien, Asgerdur Petursdottir (a.o.petursdottir@bath.ac.uk) and Liang Wang
Additional contact information
Han Han: School of Economics Peking University
Asgerdur Petursdottir: University of Bath

No 201909, Working Papers from University of Hawaii at Manoa, Department of Economics

Abstract: We study asset liquidity in a search-theoretic framework where divisible assets can facilitate exchange for an indivisible consumption good. The distinctive characteristics of our theory are that the asset dividend can be either positive or negative and buyers can choose whether or not to carry the asset and trade for the indivisible good. Buyers' participation determines the demand for asset liquidity and hence asset price carries a component of liquidity premium to reflect its function of trade facilitation. The economy features multiple equilibria when the asset dividend is negative, due to the trade-off between the probability of trade and the endogenous cost of holding the asset.

Keywords: Asset; Indivisibility; Liquidity; Search (search for similar items in EconPapers)
JEL-codes: D51 E40 G12 (search for similar items in EconPapers)
Date: 2019-06
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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http://www.economics.hawaii.edu/research/workingpapers/WP_19-09.pdf First version, 2019 (application/pdf)

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Journal Article: Asset liquidity and indivisibility (2019)
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