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Asset Pricing Equilibria with Indivisible Goods

Author

Listed:
  • Han Han

    () (School of Economics Peking University)

  • Benoit Julien

    () (UNSW Australia)

  • Asgerdur Petursdottir

    () (University of Bath)

  • Liang Wang

    () (University of Hawaii Manoa)

Abstract

We study asset pricing of divisible assets based on consumption decisions of indivisible goods in a frictional market. Indivisibility matters for equilibria along with the trading mechanism. Bargaining generates a good's price that is not linked to the dividend value of the asset or the number of active buyers of the asset. In contrast, competitive search generates a price as a continuous function of the dividend and the number of buyers. In both cases, when the asset supply is scarce, the asset price bears a liquidity premium that closely relates to the dividend and the number of buyers. We also find that, for positive dividend values on the asset, unique stationary asset price equilibrium exists, while for negative dividend values, multiple equilibria occur. We show that lotteries are not used in any equilibria, but sellers are able to extract a positive surplus under bargaining with lotteries.

Suggested Citation

  • Han Han & Benoit Julien & Asgerdur Petursdottir & Liang Wang, 2017. "Asset Pricing Equilibria with Indivisible Goods," Working Papers 201705, University of Hawaii at Manoa, Department of Economics.
  • Handle: RePEc:hai:wpaper:201705
    as

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    File URL: http://www.economics.hawaii.edu/research/workingpapers/WP_17-05.pdf
    File Function: First version, 2017
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Asset; Competitive Search; Indivisibility; Lottery; Nash Bargaining;

    JEL classification:

    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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