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Asset Prices and Liquidity in an Exchange Economy

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  • Ricardo Lagos

    (Economics Federal Reserve Bank of Minneapolis and New York University)

Abstract

An asset-pricing model is developed, in which financial assets are valued for their liquidity--the extent to which they are useful in facilitating exchange--as well as for being claims to streams of consumption goods. The theory is used to study the implications of this liquidity channel for average asset returns, the equity-premium puzzle and the risk-free rate puzzle.
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Suggested Citation

  • Ricardo Lagos, 2005. "Asset Prices and Liquidity in an Exchange Economy," 2005 Meeting Papers 143, Society for Economic Dynamics.
    • Handle: RePEc:red:sed005:143
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