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Asset prices and liquidity in an exchange economy

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  • Lagos, Ricardo

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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  • Lagos, Ricardo, 2010. "Asset prices and liquidity in an exchange economy," Journal of Monetary Economics, Elsevier, vol. 57(8), pages 913-930, November.
  • Handle: RePEc:eee:moneco:v:57:y:2010:i:8:p:913-930
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