Collateral requirements and asset prices

Johannes Brumm, Michael Grill, Felix Kubler and Karl Schmedders

No 44/2013, Discussion Papers from Deutsche Bundesbank

Abstract: Many assets derive their value not only from future cash flows but also from their ability to serve as collateral. In this paper, we investigate this collateral value and its impact on asset returns in an infinite-horizon general equilibrium model with heterogeneous agents facing collateral constraints for borrowing. We document that borrowing against collateral substantially increases the return volatility of long-lived assets. Moreover, otherwise identical assets with different degrees of collateralizability exhibit substantially different return dynamics because their prices contain a sizable collateral premium that varies over time. This premium can be positive even for assets that never pay dividends.

Keywords: collateral constraints; collateral premium; endogenous margins; heterogeneous agents; leverage (search for similar items in EconPapers)
JEL-codes: D53 G11 G12 (search for similar items in EconPapers)
Date: 2013
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 (4)

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https://www.econstor.eu/bitstream/10419/87723/1/771921144.pdf (application/pdf)

Related works:
Journal Article: COLLATERAL REQUIREMENTS AND ASSET PRICES (2015)
Working Paper: Collateral Requirements and Asset Prices (2011)
Working Paper: Collateral Requirements and Asset Prices (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:442013

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