Asset Prices and Liquidity in an Exchange Economy
Posted: 25 Jul 2008
Date Written: May 1, 2006
I develop an asset-pricing model in which financial assets are valued for their liquidity-the extent to which they are useful in facilitating exchange-as well as for being claims to streams of consumption goods. The implications for average asset returns, the equity-premium puzzle and the risk-free rate puzzle, are explored in a version of the model that nests the work of Mehra and Prescott (1985).
Keywords: Asset Pricing, Liquidity, Exchange, Equity Premium, Risk-Free Rate
JEL Classification: D42, E52, G12
Suggested Citation: Suggested Citation