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Benign Granularity in Asset Markets

Author

Listed:
  • Sergei Glebkin

    (INSEAD)

  • Semyon Malamud

    (Ecole Polytechnique Federale de Lausanne; Centre for Economic Policy Research (CEPR); Swiss Finance Institute)

  • Alberto Mokak Teguia

    (University of British Columbia (UBC))

Abstract

We develop a tractable model to study how asset concentration among a few large investors impacts asset prices and liquidity. Consistent with existing empirical evidence: (i) greater concentration is associated with higher volatility and returns, and (ii) large investors' turnover share is smaller than their proportion of total wealth. Surprisingly, higher concentration enhances liquidity, aligning with our new empirical findings. We show that increased concentration can benefit all investors in sufficiently non-competitive markets. We link the wedge between competitive and non-competitive outcomes to the Herfindahl-Hirschman Index measuring wealth concentration. The wedge can remain positive even in large markets.

Suggested Citation

  • Sergei Glebkin & Semyon Malamud & Alberto Mokak Teguia, 2025. "Benign Granularity in Asset Markets," Swiss Finance Institute Research Paper Series 25-97, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2597
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    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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