Heterogeneity in decentralized asset markets

Pierre-Olivier Weill, Benjamin Lester and Julien Hugonnier

No 1014, 2016 Meeting Papers from Society for Economic Dynamics

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.

Date: 2016
New Economics Papers: this item is included in nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2016/paper_1014.pdf (application/pdf)

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 (2015)
Working Paper: Heterogeneity in Decentralized Asset Markets (2014)
Working Paper: Heterogeneity in Decentralized Asset Markets (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:sed016:1014

Access Statistics for this paper

More papers in 2016 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().