Flight to quality, flight to liquidity, and the pricing of risk
By: Dimitri Vayanos.
Contributors: Vayanos, Dimitri.; National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 10327; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 10327.
Publisher: National Bureau of Economic Research
Published: 2004
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "We propose a dynamic equilibrium model of a multi-asset market with stochastic volatility and transaction costs.  Our key assumption is that investors are fund managers, subject to withdrawals when fund performance falls below a threshold.  This generates a preference for liquidity that is time-varying and increasing with volatility.  We show that during volatile times, assets' liquidity premia increase, investors become more risk averse, assets become more negatively correlated with volatility, assets' pairwise correlations can increase, and illiquid assets' market betas increase.  Moreover, an unconditional CAPM can understate the risk of illiquid assets because these assets become riskier when investors are the most risk averse"--National Bureau of Economic Research web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 1/21/2005.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.