Collateral requirements and asset prices
AbstractMany assets derive their value not only from future cash flows but also from their ability to serve as collateral. In this paper, we investigate this collateral value and its impact on asset returns in an infinite-horizon general equilibrium model with heterogeneous agents facing collateral constraints for borrowing. We document that borrowing against collateral substantially increases the return volatility of long-lived assets. Moreover, otherwise identical assets with different degrees of collateralizability exhibit substantially different return dynamics because their prices contain a sizable collateral premium that varies over time. This premium can be positive even for assets that never pay dividends. --
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Bibliographic InfoPaper provided by Deutsche Bundesbank, Research Centre in its series Discussion Papers with number 44/2013.
Date of creation: 2013
Date of revision:
collateral constraints; collateral premium; endogenous margins; heterogeneous agents; leverage;
Other versions of this item:
- Johannes Brumm & Michael GRILL & Felix KUBLER & Karl SCHMEDDERS, . "Collateral Requirements and Asset Prices," Swiss Finance Institute Research Paper Series 11-10, Swiss Finance Institute.
- Michael Grill & Karl Schmedders & Felix Kubler & Johannes Brumm, 2011. "Collateral Requirements and Asset Prices," 2011 Meeting Papers 737, Society for Economic Dynamics.
- D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Collateral requirements and asset prices
by Christian Zimmermann in NEP-DGE blog on 2013-12-10 03:43:45
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