Endogenous liquidity in asset markets

Deskripsi

This paper analyzes a model in which long-term risky assets are illiquid due to adverse selection. The degree of advers selection and hence the liquidity of these assets is determined endogenously by the amount of trade for reasons other than private information. I find that higher productivity leads to increased liquidity. Moreover, liquidity magnifies the effects of changes in productivity on investment and volume..Printed Journal