Pricing and Liquidity in Decentralized Asset Markets

Liquidity in Frictional Asset Markets

Liquidity and Asset Prices in Multiple Markets

Liquidity is generally viewed as a positive characteristic of a traded asset in positive net supply. Ceteris paribus, the higher liquidity of a given asset should be reflected in a higher price or a lower required return. This issue is of particular interest if the same asset is traded in multiple markets. In this setting, apart from the effect of liquidity on pricing in each market, there is t...

Pricing Liquidity in Electronic Markets

Heterogeneity in Decentralized Asset Markets∗

We consider a decentralized market for an asset (or durable good) where investors’ valuations are heterogeneous and drawn from an arbitrary distribution. We provide a full characterization of the equilibrium, in closed form, both in and out of steady state. We find that investors with moderate valuations tend to specialize in intermediation, so that a “core-periphery” trading network emerges en...

Liquidity in Asset Markets with Search Frictions∗

We develop a search-theoretic model of financial intermediation and use it to study how trading frictions affect the distribution of asset holdings, asset prices, efficiency, and standard measures of liquidity. A distinctive feature of our theory is that it allows for unrestricted asset holdings, so market participants can accommodate trading frictions by adjusting their asset positions. We sho...