Publication Type

Journal Article

Version

acceptedVersion

Publication Date

4-2021

Abstract

This paper proposes a theory of endogenous differences in liquidity of assets based on the interaction between differences in the risk of assets and differences in liquidity needs of investors. An equilibrium of the model, which always exists and is unique, displays a class structure, where investors’ types sort themselves across different types of assets. I also provide a detailed analysis of the possible types of sorting and of the consequences for the cross-sectional properties of asset prices and their velocity. The framework can also be useful to think about what constitute a ""light-to-liquidity" and a "safe asset".

Keywords

Asset Prices, Classes, Liquidity

Discipline

Behavioral Economics | Political Economy

Research Areas

Applied Microeconomics

Publication

Journal of Political Economy

Volume

129

Issue

4

First Page

1100

Last Page

1156

ISSN

0022-3808

Identifier

10.1086/712736

Publisher

University of Chicago Press

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1086/712736

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