NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
loading...

Heterogeneity in Decentralized Asset Markets

Julien Hugonnier, Benjamin Lester, Pierre-Olivier Weill

NBER Working Paper No. 20746
Issued in December 2014, Revised in February 2016
NBER Program(s):Asset Pricing, Economic Fluctuations and Growth, Monetary Economics

We study a search and bargaining model of an asset market, where investors' heterogeneous valuations for the asset are drawn from an arbitrary distribution. Our solution technique makes the model fully tractable and allows us to provide a full characterization of the unique equilibrium, in closed-form, both in and out of steady-state. Using this characterization, we first establish that the model generates aggregate trading patterns that are consistent with those observed in many over-the-counter asset markets. Then, we show that the model can replicate empirical regularities reported from micro-level data sets, including the relationships between the length of the intermediation chains through which assets are reallocated, the network centrality of the dealers involved in these chains, and the markup charged on the asset being passed along the chain. Finally, we show that heterogeneity magnifies the price impact of search frictions, and that this impact is more pronounced on price levels than on price dispersion. Hence, using observed price dispersion to quantify the effect of search frictions on price discounts or premia can be misleading.

download in pdf format
   (1032 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w20746

Users who downloaded this paper also downloaded* these:
Atkeson, Eisfeldt, and Weill w20416 Entry and Exit in OTC Derivatives Markets
Lester, Rocheteau, and Weill w20608 Competing for Order Flow in OTC Markets
Clemens and Wither w20724 The Minimum Wage and the Great Recession: Evidence of Effects on the Employment and Income Trajectories of Low-Skilled Workers
Lettau, Ludvigson, and Ma w20744 Capital Share Risk in U.S. Asset Pricing
Gelber, Isen, and Kessler w20810 The Effects of Youth Employment: Evidence from New York City Summer Youth Employment Program Lotteries
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us