Liquidity and Selection in Asset Markets with Search Frictions
نویسنده
چکیده
I construct a model of an asset market subject to search frictions, in an environment where both asset liquidity and market composition are determined endogenously. The analysis predicts that higher asset prices resulting from exogenously higher asset earnings imply: (i) a shorter search duration for sellers (higher liquidity), (ii) a shorter owner tenure before listing assets for resale (turnover), (iii) a higher stock of buyers, and (iv) a higher share of the asset stock traded (trade volume). Asset priceearnings ratios respond positively to earnings because liquidity premia respond to the size of earnings relative to the costs of search. I show that liquidity effects and selection effects reinforce each other in the presence of search frictions.
منابع مشابه
Tsunami, PRELIMINARY
This paper considers an asset market subject to search frictions, where there are adjustment costs to the entry rate of buyers. An implication is that even in asset markets where the search frictions are very small, asset prices respond to changes in liquidity. Another implication is that asset liquidity is a state variable, the dynamics of which are analyzed. I demonstrate that transition path...
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