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The Role of Trading Frictions in Real Asset Markets

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  • Alessandro Gavazza

Abstract

This paper investigates how trading frictions vary with the thickness of the asset market by examining patterns of asset allocations and prices in commercial aircraft markets. The empirical analysis indicates that assets with a thinner market are less liquid -- i.e., more difficult to sell. Thus, firms hold on longer to them amid profitability shocks. Hence, when markets for assets are thin, firms' average productivity and capacity utilization are lower, and the dispersions of productivity and of capacity utilization are higher. In turn, prices of assets with a thin market are lower and have a higher dispersion. (JEL A12, L11, L93)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.4.1106
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 101 (2011)
Issue (Month): 4 (June)
Pages: 1106-43

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Handle: RePEc:aea:aecrev:v:101:y:2011:i:4:p:1106-43

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Citations

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Cited by:
  1. Guillaume Rocheteau & Pierre‐Olivier Weill, 2011. "Liquidity in Frictional Asset Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 261-282, October.
  2. Hendershott, Terrence & Menkveld, Albert J., 2010. "Price pressures," CFS Working Paper Series 2010/14, Center for Financial Studies (CFS).
  3. Murillo Campello & Erasmo Giambona, 2011. "Capital Structure and the Redeployability of Tangible Assets," Tinbergen Institute Discussion Papers 11-091/2/DSF24, Tinbergen Institute.
  4. Myrto Kalouptsidi, 2011. "Time to Build and Shipping Prices," 2011 Meeting Papers 661, Society for Economic Dynamics.
  5. repec:dgr:uvatin:2011091 is not listed on IDEAS
  6. Nikita Roketskiy & Alessandro Lizzeri & Alessandro Gavazza, 2012. "A Quantitative Analysis of the Used Car Market," 2012 Meeting Papers 173, Society for Economic Dynamics.
  7. Wong, Maisy, 2013. "Estimating the Distortionary Effects of Ethnic Quotas in Singapore Using Housing Transactions," MPRA Paper 51217, University Library of Munich, Germany.
  8. Briana Chang, 2011. "Adverse Selection and Liquidity Distortion in Decentralized Markets," 2011 Meeting Papers 157, Society for Economic Dynamics.
  9. André Kurmann, 2009. "Holdups and Overinvestment in Physical Capital Markets," Cahiers de recherche 0904, CIRPEE.
  10. Pablo Kurlat, 2013. "Lemons Markets and the Transmission of Aggregate Shocks," American Economic Review, American Economic Association, vol. 103(4), pages 1463-89, June.
  11. Murillo Campello & Erasmo Giambona, 2012. "Real Assets and Capital Structure," NBER Working Papers 18147, National Bureau of Economic Research, Inc.
  12. Gavazza, Alessandro, 2010. "Asset liquidity and financial contracts: Evidence from aircraft leases," Journal of Financial Economics, Elsevier, vol. 95(1), pages 62-84, January.

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