Heterogeneity in Decentralized Asset Markets

Julien Hugonnier, Benjamin Lester and Pierre-Olivier Weill

No 20746, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study a search and bargaining model of an asset market, where investors' heterogeneous valuations for the asset are drawn from an arbitrary distribution. Our solution technique makes the model fully tractable and allows us to provide a full characterization of the unique equilibrium, in closed-form, both in and out of steady-state. Using this characterization, we first establish that the model generates aggregate trading patterns that are consistent with those observed in many over-the-counter asset markets. Then, we show that the model can replicate empirical regularities reported from micro-level data sets, including the relationships between the length of the intermediation chains through which assets are reallocated, the network centrality of the dealers involved in these chains, and the markup charged on the asset being passed along the chain. Finally, we show that heterogeneity magnifies the price impact of search frictions, and that this impact is more pronounced on price levels than on price dispersion. Hence, using observed price dispersion to quantify the effect of search frictions on price discounts or premia can be misleading.

JEL-codes: D0 D53 D83 G0 G12 (search for similar items in EconPapers)
Date: 2014-12
New Economics Papers: this item is included in nep-dge
Note: AP EFG ME
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Citations: View citations in EconPapers (44)

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Related works:
Journal Article: Heterogeneity in decentralized asset markets (2022)
Working Paper: Heterogeneity in Decentralized Asset Markets (2020)
Working Paper: Heterogeneity in Decentralized Asset Markets (2019)
Working Paper: Heterogeneity in Decentralized Asset Markets (2019)
Working Paper: Heterogeneity in decentralized asset markets (2016)
Working Paper: Heterogeneity in decentralized asset markets (2015)
Working Paper: Heterogeneity in Decentralized Asset Markets (2014)
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