IDEAS home Printed from https://ideas.repec.org/a/oup/rfinst/v31y2018i9p3307-3343..html
   My bibliography  Save this article

Asset Price Dynamics in Partially Segmented Markets

Author

Listed:
  • Robin Greenwood
  • Samuel G Hanson
  • Gordon Y Liao

Abstract

We develop a model in which capital moves quickly within an asset class but slowly between asset classes. While most investors specialize in a single asset class, a handful of generalists gradually reallocate capital across markets. Upon the arrival of a large supply shock, prices of risk in the directly affected asset class become disconnected from those in others. Over the long run, capital flows cause prices of risk to become more closely aligned. While prices in the directly affected market initially overreact, prices in related markets may underreact. We use the model to reassess event-study evidence on quantitative easing. Received June 6, 2016; editorial decision November 11, 2017 by Editor Andrew Karolyi. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Robin Greenwood & Samuel G Hanson & Gordon Y Liao, 2018. "Asset Price Dynamics in Partially Segmented Markets," Review of Financial Studies, Society for Financial Studies, vol. 31(9), pages 3307-3343.
  • Handle: RePEc:oup:rfinst:v:31:y:2018:i:9:p:3307-3343.
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/rfs/hhy048
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

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


    Cited by:

    1. Jun Kyung Auh & Jennie Bai, 2020. "Cross-Asset Information Synergy in Mutual Fund Families," NBER Working Papers 26626, National Bureau of Economic Research, Inc.
    2. Koijen, Ralph S.J. & Koulischer, François & Nguyen, Benoît & Yogo, Motohiro, 2021. "Inspecting the mechanism of quantitative easing in the euro area," Journal of Financial Economics, Elsevier, vol. 140(1), pages 1-20.
    3. Marco Di Maggio & Amir Kermani & Christopher Palmer, 2016. "How Quantitative Easing Works: Evidence on the Refinancing Channel," NBER Working Papers 22638, National Bureau of Economic Research, Inc.
    4. Charles W. Calomiris & Harry Mamaysky, 2019. "Monetary Policy and Exchange Rate Returns: Time-Varying Risk Regimes," NBER Working Papers 25714, National Bureau of Economic Research, Inc.
    5. Denis Gromb & Dimitri Vayanos, 2018. "The Dynamics of Financially Constrained Arbitrage," Journal of Finance, American Finance Association, vol. 73(4), pages 1713-1750, August.
    6. Neuhierl, Andreas & Weber, Michael, 2019. "Monetary policy communication, policy slope, and the stock market," Journal of Monetary Economics, Elsevier, vol. 108(C), pages 140-155.
    7. Antonio Diez de los Rios, 2020. "A Portfolio-Balance Model of Inflation and Yield Curve Determination," Staff Working Papers 20-6, Bank of Canada.
    8. Bekaert, Geert & De Santis, Roberto A., 2020. "Risk and return in international corporate bond markets," Working Paper Series 2452, European Central Bank.
    9. Aytek Malkhozov & Philippe Mueller & Andrea Vedolin & Gyuri Venter, 2016. "Mortgage Risk and the Yield Curve," Review of Financial Studies, Society for Financial Studies, vol. 29(5), pages 1220-1253.
    10. Kondor, Péter & Zawadowski, Adam, 2019. "Learning in crowded markets," Journal of Economic Theory, Elsevier, vol. 184(C).
    11. Ricardo Correa & Wenxin Du & Gordon Y. Liao, 2020. "U.S. Banks and Global Liquidity," NBER Working Papers 27491, National Bureau of Economic Research, Inc.
    12. Anna Duszak, 2018. "Does the Way of Financing Quantitative Easing Programmes Matter?," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 10(2), pages 101-131, June.
    13. Jansen, Kristy, 2021. "Essays on institutional investors, portfolio choice, and asset prices," Other publications TiSEM fd998408-d282-4e0f-b542-4, Tilburg University, School of Economics and Management.
    14. Pitkäjärvi, Aleksi & Suominen, Matti & Vaittinen, Lauri, 2020. "Cross-asset signals and time series momentum," Journal of Financial Economics, Elsevier, vol. 136(1), pages 63-85.
    15. Liao, Gordon Y., 2020. "Credit migration and covered interest rate parity," Journal of Financial Economics, Elsevier, vol. 138(2), pages 504-525.
    16. R.J. Galema & S. Lugo, 2017. "When central banks buy corporate bonds: : Target selection and impact of the European Corporate Sector Purchase Program," Working Papers 17-16, Utrecht School of Economics.
    17. Robin Greenwood & Samuel G. Hanson & Jeremy C. Stein & Adi Sunderam, 2020. "A Quantity-Driven Theory of Term Premia and Exchange Rates," NBER Working Papers 27615, National Bureau of Economic Research, Inc.
    18. Valentin Haddad & Alan Moreira & Tyler Muir, 2020. "When Selling Becomes Viral: Disruptions in Debt Markets in the COVID-19 Crisis and the Fed’s Response," NBER Working Papers 27168, National Bureau of Economic Research, Inc.
    19. Gordon Y. Liao, 2019. "Credit Migration and Covered Interest Rate Parity," International Finance Discussion Papers 1255, Board of Governors of the Federal Reserve System (U.S.).
    20. Kirill Shakhnov & Nicola Borri, 2017. "Limited Arbitrage in the Market for Local Currency Emerging Market Debt," 2017 Meeting Papers 737, Society for Economic Dynamics.
    21. Erkko Etula & Kalle Rinne & Matti Suominen & Lauri Vaittinen, 2020. "Dash for Cash: Monthly Market Impact of Institutional Liquidity Needs," Review of Financial Studies, Society for Financial Studies, vol. 33(1), pages 75-111.
    22. Mark A. Carlson & Stefania D'Amico & Cristina Fuentes-Albero & Bernd Schlusche & Paul R. Wood, 2020. "Issues in the Use of the Balance Sheet Tool," Finance and Economics Discussion Series 2020-071, Board of Governors of the Federal Reserve System (U.S.).
    23. Babina, Tania & Jotikasthira, Chotibhak & Lundblad, Christian T & Ramadorai, Tarun, 2015. "Heterogenous Taxes and Limited Risk Sharing: Evidence from Municipal Bonds," CEPR Discussion Papers 10971, C.E.P.R. Discussion Papers.
    24. Iraola, Miguel A. & Sepúlveda, Fabián & Torres-Martínez, Juan Pablo, 2019. "Financial segmentation and collateralized debt in infinite-horizon economies," Journal of Mathematical Economics, Elsevier, vol. 80(C), pages 56-69.

    More about this item

    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:oup:rfinst:v:31:y:2018:i:9:p:3307-3343.. 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: . General contact details of provider: https://edirc.repec.org/data/sfsssea.html .

    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: Oxford University Press The email address of this maintainer does not seem to be valid anymore. Please ask Oxford University Press to update the entry or send us the correct address or Christopher F. Baum (email available below). General contact details of provider: https://edirc.repec.org/data/sfsssea.html .

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.