Abstract

http://ssrn.com/abstract=1792720
 
 

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Collateral Requirements and Asset Prices


Johannes Brumm


University of Zurich

Michael Grill


European Central Bank (ECB)

Felix Kubler


University of Zurich; Swiss Finance Institute

Karl Schmedders


Swiss Finance Institute; University of Zurich

December 16, 2013

Swiss Finance Institute Research Paper No. 11-10

Abstract:     
Many assets derive their value not only from future cash flows but also from their ability to serve as collateral. In this paper, we investigate this collateral premium and its impact on asset returns in an infinite-horizon general equilibrium model with heterogeneous agents facing collateral constraints for borrowing. We document that borrowing against collateral substantially increases the return volatility of long-lived assets. Moreover, otherwise identical assets with different degrees of collateralizability exhibit substantially different return dynamics because their prices contain a sizable collateral premium that varies over time. This premium can be positive even for assets that never pay dividends.

Number of Pages in PDF File: 35

Keywords: Bubbles, collateral constraints, collateral premium, endogenous margins.

JEL Classification: D53, G11, G12.

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Date posted: March 27, 2011 ; Last revised: January 13, 2014

Suggested Citation

Brumm, Johannes and Grill, Michael and Kubler, Felix and Schmedders, Karl, Collateral Requirements and Asset Prices (December 16, 2013). Swiss Finance Institute Research Paper No. 11-10. Available at SSRN: http://ssrn.com/abstract=1792720 or http://dx.doi.org/10.2139/ssrn.1792720

Contact Information

Johannes Brumm
University of Zurich ( email )
Rämistrasse 71
Zürich, CH-8006
Switzerland
Michael Grill
European Central Bank (ECB) ( email )
Kaiserstrasse 29
Frankfurt am Main, D-60311
Germany
Felix E. Kubler
University of Zurich ( email )
Rämistrasse 71
Zürich, CH-8006
Switzerland
Swiss Finance Institute ( email )
c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland

Karl Schmedders (Contact Author)
Swiss Finance Institute ( email )
c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland

University of Zurich ( email )
Moussonstrasse 15
Zürich, CH-8044
Switzerland
+41 (0)44 634 3770 (Phone)
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