Equilibrium valuation of illiquid assets

John Robert Krainer () and Stephen F. LeRoy ()
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Stephen F. LeRoy: Economics Department, University of California at Santa Barbara, Santa Barbara, CA 93106, USA

Economic Theory, 2002, vol. 19, issue 2, pages 223-242

Abstract: We develop an equilibrium model of illiquid asset valuation based on search and matching. We propose several measures of illiquidity and show how these measures behave. We also show that the equilibrium amount of search may be less than, equal to or greater than the amount of search that is socially optimal. Finally, we show that excess returns on illiquid assets are fair games if returns are defined to include the appropriate shadow prices.

Keywords: Asset pricing; Housing prices; Illiquidity; Search. (search for similar items in EconPapers)
JEL-codes: G12 D40 D83 (search for similar items in EconPapers)
Date: 2001-10-29
Note: Received: June 25, 2000; revised version: October 24, 2000
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