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Asset markets can achieve efficiency in the directed search framework

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Author Info
Shoko Morimoto () (Graduate School of Economics, Osaka University)
Abstract

Using a directed search model, modified from random matching, this paper investigates how trading frictions in asset markets affect portfolio choices, asset prices, and welfare. By solving the model numerically, it is demonstrated that the asset price increases (decreases) in the matching efficiency, if the relative risk aversion is smaller (larger) than unity. Efficient asset allocation is achieved in the directed search framework, while random matching is known not to achieve efficient allocation.

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File URL: http://www2.econ.osaka-u.ac.jp/library/global/dp/0933.pdf
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Publisher Info
Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 09-33.

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Length: 24 pages
Date of creation: Sep 2009
Date of revision:
Handle: RePEc:osk:wpaper:0933

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Web page: http://www.econ.osaka-u.ac.jp/
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Related research
Keywords: directed search; asset market; social welfare; intermediation;

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Find related papers by JEL classification:
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Ricardo Lagos & Guillaume Rocheteau, 2007. "Search in Asset Markets: Market Structure, Liquidity, and Welfare," American Economic Review, American Economic Association, vol. 97(2), pages 198-202, May. [Downloadable!]
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  2. Weill, Pierre-Olivier, 2008. "Liquidity premia in dynamic bargaining markets," Journal of Economic Theory, Elsevier, vol. 140(1), pages 66-96, May. [Downloadable!] (restricted)
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  3. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Blackwell Publishing, vol. 57(2), pages 279-98, April. [Downloadable!] (restricted)
  4. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Blackwell Publishing, vol. 51(3), pages 393-414, July. [Downloadable!] (restricted)
  5. Vayanos, Dimitri & Wang, Tan, 2007. "Search and endogenous concentration of liquidity in asset markets," Journal of Economic Theory, Elsevier, vol. 136(1), pages 66-104, September. [Downloadable!] (restricted)
  6. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
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  7. Dimitri Vayanos & Pierre-Olivier Weill, 2008. "A Search-Based Theory of the On-the-Run Phenomenon," Journal of Finance, American Finance Association, vol. 63(3), pages 1361-1398, 06. [Downloadable!] (restricted)
    Other versions:
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