IDEAS home Printed from https://ideas.repec.org/p/ris/kngedp/2003_011.html
   My bibliography  Save this paper

Liquidity and Ambiguity: Banks or Asset Markets?

Author

Listed:
  • Eichberger, Jürgen

    (Alfred Weber Institut, Universität Heidelberg)

  • Spanjers, Willem

    (Kingston University London)

Abstract

We study the impact of ambiguity on financial intermediation in an economy where agents have random liquidity needs. The ambiguity the agents face is modeled by the degree of confidence in their additive beliefs. We compare an optimal liquidity allocation with the allocation achieved by trade in an asset market, by a mutual fund, and by a competitive banking sector. For low levels of confidence, intermediation is superfluous. For intermediate levels the asset market, and for high levels of confidence banks are the preferred intermediary arrangements. The desirability of mutual funds depends crucially on the possibility of short sales. When short selling of fund shares is feasible, the asset market outcome results. If short sales are impossible, then a mutual fund can implement the optimal outcome for any degree of confidence.

Suggested Citation

  • Eichberger, Jürgen & Spanjers, Willem, 2003. "Liquidity and Ambiguity: Banks or Asset Markets?," Economics Discussion Papers 2003-11, School of Economics, Kingston University London.
    • Handle: RePEc:ris:kngedp:2003_011
    as

    Download full text from publisher

    File URL: http://staffnet.kingston.ac.uk/~ku33681/RePEc/kin/papers/2003_011.pdf
    File Function: Full text
    Download Restriction: no
    ---><---

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Spanjers, Willem, 2005. "Loss of confidence and currency crises," Economics Discussion Papers 2005-2, School of Economics, Kingston University London.

    More about this item

    Keywords

    Financial institutions; Liquidity; Ambiguity; Choquet Expected Utility.;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ris:kngedp:2003_011. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Andrea Ingianni (email available below). General contact details of provider: https://edirc.repec.org/data/sekinuk.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.