Asset markets can achieve efficiency in the directed search framework

Shoko Morimoto ()
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Shoko Morimoto: Graduate School of Economics, Osaka University

No 09-33, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: Using a directed search model, modified from random matching, this paper investigates how trading frictions in asset markets affect portfolio choices, asset prices, and welfare. By solving the model numerically, it is demonstrated that the asset price increases (decreases) in the matching efficiency, if the relative risk aversion is smaller (larger) than unity. Efficient asset allocation is achieved in the directed search framework, while random matching is known not to achieve efficient allocation.

Keywords: directed search; asset market; social welfare; intermediation (search for similar items in EconPapers)
JEL-codes: D83 G11 G12 G14 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2009-09
New Economics Papers: this item is included in nep-dge
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