The Role of Trading Frictions in Real Asset Markets
نویسنده
چکیده
Almost all real assets trade in decentralized markets, where trading frictions could inhibit the efficiency of asset allocations and depress asset prices. In this paper, I use data on commercial aircraft markets to empirically investigate whether trading frictions vary with the size of the asset market. Intuitively, it is more difficult to sell assets that have a thin market. As a result, firms find it optimal to hold on longer to assets with a thinner market in case their profitability rises in the future. Thus, when markets for firms’ assets are thin, firms’ average productivity and capacity utilization are lower, and the dispersions of productivity and of capacity utilization are higher. In turn, prices of assets with a thin market are, on average, lower and have a higher dispersion, since prices depend on firms’ productivity and capacity utilization. The empirical analysis confirms that trading frictions vary with the size of the market, as aircraft with a thinner market have: 1) lower turnover; 2) lower capacity utilization; 3) higher dispersion of utilization levels; 4) lower mean prices; and 5) higher dispersion of transaction prices. Leonard N. Stern School of Business, New York University. Email: [email protected]. Previous versions of the paper circulated under the title “Liquidity in Real Asset Markets” and “Thick-Market Effects in Real Asset Markets.” I am grateful for the comments of Pierre-Olivier Weill, and of seminar participants at Yale University, the London School of Economics, Duke University, the 2007 UCSB-LAEF Conference on Trading Frictions in Asset Markets, the 2008 NASM of the Econometric Society, and the 2008 WFA Meetings. Special thanks to Todd Pulvino for providing some of the data used in this paper, and to Jessica Jiang, Alistair Wilson and Jihye Jeon for help with the research.
منابع مشابه
Thick-Market Effects in Real Asset Markets
Almost all real assets trade in decentralized markets, where trading frictions could inhibit the efficiency of asset allocations and depress asset prices. In this paper, I investigate how trading frictions vary as asset markets get thicker, and what implications market thickness has for asset allocations and prices. Intuitively, it is easier to sell assets that have a thicker market. As a resul...
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