TY  - JOUR
AU  - Vayanos,Dimitri
AU  - Wang,Jiang
TI  - Liquidity and Asset Prices: A Unified Framework
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15215
PY  - 2009
Y2  - August 2009
UR  - http://www.nber.org/papers/w15215
L1  - http://www.nber.org/papers/w15215.pdf
N1  - Author contact info:
Dimitri Vayanos
Department of Finance, OLD 3.41
London School of Economics
Houghton Street
London WC2A 2AE
UNITED KINGDOM
Tel: +44 (0)20 7955 6382
Fax: +44 (0)20 7955 7420
E-Mail: d.vayanos@lse.ac.uk

Jiang Wang
MIT Sloan School of Management
100 Main Street, E62-614
Cambridge, MA 02142
Tel: 617/253-2632
Fax: 617/258-6855
E-Mail: wangj@mit.edu
AB  - We examine how liquidity and asset prices are affected by the following market imperfections: asymmetric information, participation costs, transaction costs, leverage constraints, non-competitive behavior and search.  Our model has three periods: agents are identical in the first, become heterogeneous and trade in the second, and consume asset payoffs in the third. We examine how imperfections in the second period affect different measures of illiquidity, as well as asset prices in the first period.  Besides nesting multiple imperfections in a single model, we derive new results on the effects of each imperfection.  Our results imply, in particular, that imperfections do not always raise expected returns, and can influence common measures of illiquidity in opposite directions.
ER  -