A Competitive Search Theory of Asset Pricing
Abstract/Contents
- Abstract
- We develop an asset-pricing model with heterogeneous investors and search frictions. Trade is intermediated by risk-neutral dealers subject to capacity constraints. Risk-averse investors can direct their search towards dealers based on price and execution speed. Order flows affect the risk premium, volatility, and equilibrium interest rate. We propose a new solution method to characterize the equilibrium analytically. We assess the quantitative implications of the model in response to a large adverse shock. Consistent with the empirical evidence from the COVID-19 crisis, we find an increase in the risk premium and market illiquidity, and a decline in interest rates.
Description
| Type of resource | text |
|---|---|
| Date created | July 28, 2021 |
Creators/Contributors
| Author | Kargar, Mahyar |
|---|---|
| Author | Passadore, Juan |
| Author | Silva, Dejanir |
| Organizer of meeting | Judd, Kenneth |
| Organizer of meeting | Pohl, Walter |
| Organizer of meeting | Schmedders, Karl |
| Organizer of meeting | Wilms, Ole |
Subjects
| Subject | asset pricing |
|---|---|
| Subject | competitive search |
| Subject | market liquidity |
| Subject | perturbation methods |
| Genre | Text |
| Genre | Working paper |
| Genre | Grey literature |
Bibliographic information
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- License
- This work is licensed under a Creative Commons Attribution 4.0 International license (CC BY).
Preferred citation
- Preferred citation
- Kargar, M., Passadore, J., and Silva, D. (2022). A Competitive Search Theory of Asset Pricing. Stanford Digital Repository. Available at https://purl.stanford.edu/sh770hw1349
Collection
SITE Conference 2021
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