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Equilibrium valuation of illiquid assets

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Author Info

  • John Krainer

    ()
    (Economic Research, Federal Reserve Bank of San Francisco, San Francisco, CA 94105, USA)

  • Stephen F. LeRoy

    ()
    (Economics Department, University of California at Santa Barbara, Santa Barbara, CA 93106, USA)

Abstract

We develop an equilibrium model of illiquid asset valuation based on search and matching. We propose several measures of illiquidity and show how these measures behave. We also show that the equilibrium amount of search may be less than, equal to or greater than the amount of search that is socially optimal. Finally, we show that excess returns on illiquid assets are fair games if returns are defined to include the appropriate shadow prices.

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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 19 (2002)
Issue (Month): 2 ()
Pages: 223-242

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Handle: RePEc:spr:joecth:v:19:y:2002:i:2:p:223-242

Note: Received: June 25, 2000; revised version: October 24, 2000
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Related research

Keywords: Asset pricing; Housing prices; Illiquidity; Search.;

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Cited by:
  1. Darrell Duffie & Yeneng Sun, 2011. "The Exact Law of Large Numbers for Independent Random Matching," NBER Working Papers 17280, National Bureau of Economic Research, Inc.
  2. Christian Korth & Stefan Napel, 2008. "Fairness, Price Stickiness, and History Dependence in Decentralized Trade," Working Papers 064, Bavarian Graduate Program in Economics (BGPE).
  3. François Ortalo-Magné & Sven Rady, 2002. "Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraints," Wisconsin-Madison CULER working papers 02-01, University of Wisconsin Center for Urban Land Economic Research.
  4. John Krainer & Mark Spiegel & Nobuyoshi Yamori, 2005. "Asset price declines and real estate market illiquidity: evidence from Japanese land values," Working Paper Series 2004-16, Federal Reserve Bank of San Francisco.
  5. John Krainer, 1999. "Real estate liquidity," Economic Review, Federal Reserve Bank of San Francisco, pages 14-26.

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