Equilibrium Asset Pricing With Both Liquid And Illiquid Markets PDF Download
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| Author | : Remy Praz |
| Publisher | : |
| Total Pages | : 80 |
| Release | : 2015 |
| Genre | : |
| ISBN | : |
Download Equilibrium Asset Pricing with Both Liquid and Illiquid Markets Book in PDF, ePub and Kindle
I study a general equilibrium model in which investors face endowment risk and trade two correlated assets; one asset is traded on a liquid market whereas the other is traded on an illiquid over-the-counter (OTC) market. Endowment shocks not only make prices drop, they also make the OTC asset more difficult to sell, creating an endogenous liquidity risk. This liquidity risk increases the risk premium of both the OTC asset and liquid asset. Furthermore, the OTC market frictions increase the trading volume and the cross-sectional dispersion of ownership in the liquid market. Finally, if the economy starts with only the OTC market, then I explain how opening a correlated liquid market can increase or decrease the OTC price depending on the illiquidity level. The model's predictions can help explain several empirical findings.
| Author | : Francis A. Longstaff |
| Publisher | : |
| Total Pages | : 40 |
| Release | : 2005 |
| Genre | : |
| ISBN | : |
Download Asset Pricing in Markets with Illiquid Assets Book in PDF, ePub and Kindle
Many important classes of assets are illiquid in the sense that they cannot always be traded immediately. Thus, a portfolio position in these types of illiquid investments becomes at least temporarily irreversible. We study the asset-pricing implications of illiquidity in a two-asset exchange economy with heterogeneous agents. In this market, one asset is always liquid. The other asset can be traded initially, but then not again until after a quot;blackoutquot; period. Illiquidity has a dramatic effect on optimal portfolio decisions. Agents abandon diversification as a strategy and choose highly polarized portfolios instead. The value of liquidity can represent a large portion of the equilibrium price of an asset. We present examples in which a liquid asset can be worth up to 25 percent more than an illiquid asset even though both have identical cash flow dynamics. We also show that the expected return and volatility of an asset can change significantly as the asset becomes relatively more liquid.
| Author | : Yakov Amihud |
| Publisher | : Now Publishers Inc |
| Total Pages | : 109 |
| Release | : 2006 |
| Genre | : Business & Economics |
| ISBN | : 1933019123 |
Download Liquidity and Asset Prices Book in PDF, ePub and Kindle
Liquidity and Asset Prices reviews the literature that studies the relationship between liquidity and asset prices. The authors review the theoretical literature that predicts how liquidity affects a security's required return and discuss the empirical connection between the two. Liquidity and Asset Prices surveys the theory of liquidity-based asset pricing followed by the empirical evidence. The theory section proceeds from basic models with exogenous holding periods to those that incorporate additional elements of risk and endogenous holding periods. The empirical section reviews the evidence on the liquidity premium for stocks, bonds, and other financial assets.
| Author | : Yakov Amihud |
| Publisher | : Cambridge University Press |
| Total Pages | : 293 |
| Release | : 2012-11-12 |
| Genre | : Business & Economics |
| ISBN | : 1139560158 |
Download Market Liquidity Book in PDF, ePub and Kindle
This book presents the theory and evidence on the effect of market liquidity and liquidity risk on asset prices and on overall securities market performance. Illiquidity means incurring a high transaction cost, which includes a large price impact when trading and facing a long time to unload a large position. Liquidity risk is higher if a security becomes more illiquid when it needs to be traded in the future, which will raise trading cost. The book shows that higher illiquidity and greater liquidity risk reduce securities prices and raise the expected return that investors require as compensation. Aggregate market liquidity is linked to funding liquidity, which affects the provision of liquidity services. When these become constrained, there is a liquidity crisis which leads to downward price and liquidity spiral. Overall, the volume demonstrates the important role of liquidity in asset pricing.
| Author | : Viral V. Acharya |
| Publisher | : |
| Total Pages | : 67 |
| Release | : 2008 |
| Genre | : |
| ISBN | : |
Download Asset Pricing with Liquidity Risk Book in PDF, ePub and Kindle
This paper studies equilibrium asset pricing with liquidity risk | the risk arising from unpredictable changes in liquidity over time. It is shown that a security s required return depends on its expected illiquidity and on the covariances of its own return and illiquidity with market return and market illiquidity. This gives rise to a liquidity- adjusted capital asset pricing model. Further, if a security s liquidity is persistent, a shock to its illiquidity results in low contemporaneous returns and high predicted future returns. Empirical evidence based on cross-sectional tests is consistent with liquidity risk being priced.
| Author | : Robert A. Jarrow |
| Publisher | : |
| Total Pages | : 36 |
| Release | : 2017 |
| Genre | : |
| ISBN | : |
Download Asset Market Equilibrium with Liquidity Risk Book in PDF, ePub and Kindle
This paper derives an equilibrium asset pricing model with liquidity risk. Liquidity risk is modeled as a stochastic quantity impact on the price from trading, where the size of the impact depends on trade size. Under a mild set of assumptions, we prove that an equilibrium price process exists for our economy and we characterize the market's state price density, which enables the derivation of the risk-return relation for the stock's expected return including liquidity risk. In contrast to the traditional models without liquidity risk, there is an additional systematic liquidity risk factor which is related to the stock return's covariation with the market's stochastic liquidity cost. Traditional transaction costs are a special case of our formulation.
| Author | : John Robert Krainer |
| Publisher | : |
| Total Pages | : 288 |
| Release | : 1997 |
| Genre | : |
| ISBN | : |
Download Pricing Illiquid Assets Book in PDF, ePub and Kindle
| Author | : Robert A. Jarrow |
| Publisher | : |
| Total Pages | : 40 |
| Release | : 2018 |
| Genre | : |
| ISBN | : |
Download Capital Asset Market Equilibrium With Liquidity Risk, Trading Constraints, and Asset Price Bubbles Book in PDF, ePub and Kindle
This paper derives an equilibrium asset pricing model with endogenous liquidity risk, trading constraints, and asset price bubbles. Liquidity risk is modeled as a stochastic quantity impact on the price from trading, where the size of the impact depends on trade size. Asset price bubbles are generated by the existence of trading constraints, e.g. short sale prohibitions and margin requirements. Under a strong set of assumptions, we prove a unique equilibrium price process exists for our economy. We characterize the market's state price density, which enables the derivation of the risk-return relation for the stock's expected return including both liquidity risk and asset price bubbles. This yields a generalized intertemporal and consumption CAPM for our economy. In contrast to the traditional models without liquidity risk or asset price bubbles, there are additional systematic liquidity risk and asset price bubble factors which are related to the stock return's covariation with liquidity risk and asset price bubbles.
| Author | : Robert A. Jarrow |
| Publisher | : |
| Total Pages | : 38 |
| Release | : 2018 |
| Genre | : |
| ISBN | : |
Download Capital Asset Market Equilibrium With Liquidity Risk, Portfolio Constraints, and Asset Price Bubbles Book in PDF, ePub and Kindle
This paper derives an equilibrium asset pricing model with endogenous liquidity risk, portfolio constraints, and asset price bubbles. Liquidity risk is modeled as a stochastic quantity impact on the price from trading, where the size of the impact depends on trade size. Asset price bubbles are generated by the existence of portfolio constraints, e.g. short sale prohibitions and margin requirements. Under a restrictive set of assumptions, we prove a unique equilibrium price process exists for our economy. We characterize the market's state price density, which enables the derivation of the risk-return relation for the stock's expected return including both liquidity risk and asset price bubbles. This yields a generalized intertemporal and consumption CAPM for our economy. In contrast to the traditional models without liquidity risk or asset price bubbles, there are additional systematic liquidity risk and asset price bubble factors which are related to the stock return's covariation with liquidity risk and asset price bubbles.
| Author | : Viral V. Acharya |
| Publisher | : |
| Total Pages | : 52 |
| Release | : 2004 |
| Genre | : Capital assets pricing model |
| ISBN | : |
Download Asset Pricing with Liquidity Risk Book in PDF, ePub and Kindle
