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Periodic, Complete-participation Trade in the Lagos-Rocheteau Model

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  • Mouhua Liao

    (Xiamen University)

Abstract

Lagos-Rocheteau (Econometrica, 2009) is part of the literature that applies a search model to asset trade in the over-the-counter market. The only friction in their model is that it takes agents cost to getting into contact with other agents. In this paper, as an alternative to their investor-dealer random meetings, a centralized competitive market, which occurs periodically, is studied. This arrangement preserves the main tension in their paper: a tradeoff between a portfolio that maximizes current utility and one that is good on average. For numerical versions of the model, it is shown that this market must occur only infrequently in order for investors to be as well off as their counterparts in the Lagos-Rocheteau setup.

Suggested Citation

  • Mouhua Liao, "undated". "Periodic, Complete-participation Trade in the Lagos-Rocheteau Model," Working Papers 2014-08-06, Wang Yanan Institute for Studies in Economics (WISE), Xiamen University.
    • Handle: RePEc:wyi:wpaper:002248
    as

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    References listed on IDEAS

    as
    1. Dimitri Vayanos & Pierre‐Olivier Weill, 2008. "A Search‐Based Theory of the On‐the‐Run Phenomenon," Journal of Finance, American Finance Association, vol. 63(3), pages 1361-1398, June.
    2. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
    3. Ricardo Lagos & Guillaume Rocheteau, 2006. "Search in asset markets," Working Papers (Old Series) 0607, Federal Reserve Bank of Cleveland.
    4. Darrell Duffie, 2012. "Over-The-Counter Markets," Introductory Chapters, in: Dark Markets: Asset Pricing and Information Transmission in Over-the-Counter Markets, Princeton University Press.
    5. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-1370, November.
    6. Ricardo Lagos & Guillaume Rocheteau, 2009. "Liquidity in Asset Markets With Search Frictions," Econometrica, Econometric Society, vol. 77(2), pages 403-426, March.
    7. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
    8. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(2), pages 279-298.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    OTC market; random search; periodic market; asset trade;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • G1 - Financial Economics - - General Financial Markets

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