Advanced Search
MyIDEAS: Login to save this paper or follow this series

Collateral Requirements and Asset Prices

Contents:

Author Info

  • Michael Grill

    (University of Mannheim)

  • Karl Schmedders

    (University of Zurich)

  • Felix Kubler

    (University of Zurich)

  • Johannes Brumm

    (University of Mannheim)

Abstract

In this paper we examine the effect of collateral requirements on the prices of long- lived assets. We consider a Lucas-style infinite-horizon exchange economy with heteroge- nous agents and collateral constraints. There are two trees in the economy which can be used as collateral for short-term loans. For the first tree the collateral requirement is determined endogenously while the collateral requirement for loans on the second tree are exogenously regulated. We show that the presence of collateral constraints and the endogenous margin requirements for the first tree lead to large excess price-volatility of the second tree. Changes in the regulated margin requirements for the second tree have large effects on the volatility of both trees. While tightening margins for loans on the second tree always decreases the price volatility of the first tree, price volatility of the second tree might very well increase with this change. In our calibration we allow for the possibility of disaster states. This leads to very large quantitative effects of collateral requirements and to realistic equity risk premia. We show that our qualitative results are robust to the actual parametrization of the economy.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.economicdynamics.org/meetpapers/2011/paper_737.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 737.

as in new window
Length:
Date of creation: 2011
Date of revision:
Handle: RePEc:red:sed011:737

Contact details of provider:
Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Fax: 1-314-444-8731
Email:
Web page: http://www.EconomicDynamics.org/society.htm
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
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.:
as in new window
  1. Denis Gromb & Dimitri Vayanos, 2002. "Equilibrium and welfare in markets with financially constrained arbitrageurs," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 448, London School of Economics and Political Science, LSE Library.
  2. Nicolae G�rleanu & Lasse Heje Pedersen, 2011. "Margin-based Asset Pricing and Deviations from the Law of One Price," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 24(6), pages 1980-2022.
  3. Brunnermeier, Markus K & Pedersen, Lasse Heje, 2007. "Market Liquidity and Funding Liquidity," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6179, C.E.P.R. Discussion Papers.
  4. John Y. Campbell & Stefano Giglio & Parag Pathak, 2011. "Forced Sales and House Prices," American Economic Review, American Economic Association, American Economic Association, vol. 101(5), pages 2108-31, August.
  5. Lettau, Martin & Uhlig, Harald, 2002. "The Sharpe Ratio And Preferences: A Parametric Approach," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 6(02), pages 242-265, April.
  6. Robert J. Barro, 2007. "Rare Disasters, Asset Prices, and Welfare Costs," NBER Working Papers 13690, National Bureau of Economic Research, Inc.
  7. Epstein, Larry G & Zin, Stanley E, 1989. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: A Theoretical Framework," Econometrica, Econometric Society, Econometric Society, vol. 57(4), pages 937-69, July.
  8. Daniele Coen-Pirani, 2000. "Margin Requirements and Equilibrium Asset Prices," GSIA Working Papers, Carnegie Mellon University, Tepper School of Business 2001-E5, Carnegie Mellon University, Tepper School of Business.
  9. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, Econometric Society, vol. 46(6), pages 1429-45, November.
  10. repec:fth:starer:9825 is not listed on IDEAS
  11. S. Rao Aiyagari & Mark Gertler, 1999. ""Overreaction" of Asset Prices in General Equilibrium," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(1), pages 3-35, January.
  12. Detemple, Jerome & Murthy, Shashidhar, 1997. "Equilibrium Asset Prices and No-Arbitrage with Portfolio Constraints," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 10(4), pages 1133-74.
  13. Karl Schmedders, Felix Kubler, 2001. "Asset Pricing in Models with incomplete markets and default," Computing in Economics and Finance 2001, Society for Computational Economics 58, Society for Computational Economics.
Full references (including those not matched with items on IDEAS)

Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Collateral requirements and asset prices
    by Christian Zimmermann in NEP-DGE blog on 2013-12-10 03:43:45
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Eleonora Granziera & Sharon Kozocki, 2012. "House Price Dynamics: Fundamentals and Expectations," Working Papers, Bank of Canada 12-12, Bank of Canada.
  2. Dan Cao, 2011. "Collateral Shortages, Asset Price and Investment Volatility with Heterogeneous Beliefs," Working Papers, Georgetown University, Department of Economics gueconwpa~11-11-01, Georgetown University, Department of Economics.
  3. Winfried Koeniger & Thomas Hintermaier, 2012. "Collateral constraints and macroeconomic volatility," 2012 Meeting Papers, Society for Economic Dynamics 390, Society for Economic Dynamics.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:red:sed011:737. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.