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Liquidity premia in dynamic bargaining markets

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  • Weill, Pierre-Olivier

Abstract

This paper develops a search-theoretic model of the cross-sectional distribution of asset returns, abstracting from risk premia and focusing exclusively on liquidity. In contrast with much of the transaction-cost literature, it is not assumed that different assets carry different exogenously specified trading costs. Instead, different expected returns, due to liquidity, are explained by the cross-sectional variation in tradeable shares. The qualitative predictions of the model are consistent with much of the empirical evidence.

Suggested Citation

  • Weill, Pierre-Olivier, 2008. "Liquidity premia in dynamic bargaining markets," Journal of Economic Theory, Elsevier, vol. 140(1), pages 66-96, May.
    • Handle: RePEc:eee:jetheo:v:140:y:2008:i:1:p:66-96
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    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

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