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The Role of Trading Frictions in Real Asset Markets

  • Alessandro Gavazza

This paper investigates how trading frictions vary with the thickness of the asset market by examining patterns of asset allocations and prices in commercial aircraft markets. The empirical analysis indicates that assets with a thinner market are less liquid -- i.e., more difficult to sell. Thus, firms hold on longer to them amid profitability shocks. Hence, when markets for assets are thin, firms' average productivity and capacity utilization are lower, and the dispersions of productivity and of capacity utilization are higher. In turn, prices of assets with a thin market are lower and have a higher dispersion. (JEL A12, L11, L93)

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 101 (2011)
Issue (Month): 4 (June)
Pages: 1106-43

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Handle: RePEc:aea:aecrev:v:101:y:2011:i:4:p:1106-43
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  1. Hoyt Bleakley & Jeffrey Lin, 2007. "Thick-market effects and churning in the labor market: evidence from U.S. cities," Working Papers 07-23, Federal Reserve Bank of Philadelphia.
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  14. Chad Syverson, 2004. "Market Structure and Productivity: A Concrete Example," NBER Working Papers 10501, National Bureau of Economic Research, Inc.
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