Liquidity premia in dynamic bargaining markets

Pierre-Olivier Weill

Journal of Economic Theory, 2008, vol. 140, issue 1, 66-96

Abstract: This paper develops a search-theoretic model of the cross-sectional distribution of asset returns, abstracting from risk premia and focusing exclusively on liquidity. In contrast with much of the transaction-cost literature, it is not assumed that different assets carry different exogenously specified trading costs. Instead, different expected returns, due to liquidity, are explained by the cross-sectional variation in tradeable shares. The qualitative predictions of the model are consistent with much of the empirical evidence.

Date: 2008
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Citations: View citations in EconPapers (92)

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Related works:
Working Paper: Liquidity Premia in Dynamic Bargaining Markets (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:140:y:2008:i:1:p:66-96

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