Liquidity and Asset Prices: A Unified Framework

Dimitri Vayanos and Jiang Wang

No 15215, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We examine how liquidity and asset prices are affected by the following market imperfections: asymmetric information, participation costs, transaction costs, leverage constraints, non-competitive behavior and search. Our model has three periods: agents are identical in the first, become heterogeneous and trade in the second, and consume asset payoffs in the third. We examine how imperfections in the second period affect different measures of illiquidity, as well as asset prices in the first period. Besides nesting multiple imperfections in a single model, we derive new results on the effects of each imperfection. Our results imply, in particular, that imperfections do not always raise expected returns, and can influence common measures of illiquidity in opposite directions.

JEL-codes: D8 G1 (search for similar items in EconPapers)
Date: 2009-08
New Economics Papers: this item is included in nep-cta and nep-mic
Note: AP
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Citations: View citations in EconPapers (7)

Published as Liquidity and Asset Prices under Asymmetric Information and Imperfect Competition, Review of Financial Studies, 2012, 25, 1339-1365. (With Jiang Wang) Previously circulated under the title: Liquidity and Asset Prices: A Unified Framework.

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Related works:
Working Paper: Liquidity and Asset Prices: A Unified Framework (2009)
Working Paper: Liquidity and asset prices: a united framework (2009)
Working Paper: Liquidity and Asset Prices: A Unified Framework (2009)
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