What's Wrong with Pittsburgh? Delegated Investors and Liquidity Concentration

Andra Ghent

No 25966, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: What makes an asset institutional-quality? This paper proposes that one reason is the existing concentration of delegated investors in a market through a liquidity channel. Consistent with this intuition, it documents differences in investor composition across US cities and shows that delegated investors concentrate investments in cities with higher turnover. It then calibrates a search model showing how heterogeneity in liquidity preferences makes some markets more liquid even when assets have identical cash flows. The calibration indicates that commercial real estate commands an illiquidity premium of two percentage points annually relative to a perfectly liquid asset with similar credit risk.

JEL-codes: G11 G12 G23 R33 (search for similar items in EconPapers)
Date: 2019-06
New Economics Papers: this item is included in nep-ure
Note: AP
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Published as Andra C. Ghent, 2020. "What’s wrong with Pittsburgh? Delegated investors and liquidity concentration," Journal of Financial Economics, .

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Journal Article: What’s wrong with Pittsburgh? Delegated investors and liquidity concentration (2021)
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