Financial claustrophobia
Subtitle: asset pricing in illiquid markets
By: Francis A. Longstaff.
Contributors: National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 10411; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 10411.
Publisher: National Bureau of Economic Research
Published: 2004
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "There are many examples of markets where an agent who wants to get out of an investment position quickly may find himself trapped and forced to remain in that position because of a lack of liquidity.  What are the asset-pricing implications when agents cannot always buy and sell assets immediately? We study this issue in a multi-asset exchange economy with heterogeneous agents.  In this model, agents can trade initially, but then cannot trade again until after a trading blackout period.  The more liquid the market, the sooner agents can trade again.  Faced with illiquidity, agents abandon diversification and choose highly polarized portfolios.  Risky assets are held primarily by the less-patient short-horizon agents in the economy.  Polarization causes the usual risk-return tradeo.  to break down and an asset's price may have more to do with the demographics of who owns it than with the riskiness of its cash flows.  Risky assets are generally more valuable in an illiquid market than in a liquid market.  Market illiquidity can also have large effects on the equity premium"--National Bureau of Economic Research web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 1/13/2005.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.