Asset Pricing with Large Investors

58 Pages Posted: 6 Nov 2017 Last revised: 9 Jan 2018

See all articles by Semyon Malamud

Semyon Malamud

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

Alberto Teguia

Rice University, Jesse H. Jones Graduate School of Business, Students

Date Written: November 3, 2017


We derive closed form expressions for equilibrium asset prices and liquidity in an economy populated by a finite number of large, strategic, risk averse investors. The model allows for arbitrary risk preferences, any number of assets, and an arbitrary distribution of asset payoffs. In equilibrium, assets are priced according to the standard consumption Euler equation plus a correction term accounting for market illiquidity (price impact), linked to an endogenous measure of systemic risk that puts a large weight on low consumption states. Wealth effects imply that price impact is generally asymmetric, which leads to the emergence of endogenous systemic assets: That is, assets whose sell-off triggers large moves in all security prices.

Market liquidity is non-monotonic in funding liquidity and may decrease in the number of investors. In the presence of liquidity shortage, price impact becomes negative and gives rise to an illiquidity premium in asset prices.

Keywords: Market Liquidity, Funding Liquidity, Price Impact, Strategic Trading

JEL Classification: G20, G23, G28

Suggested Citation

Malamud, Semyon and Teguia, Alberto, Asset Pricing with Large Investors (November 3, 2017). Swiss Finance Institute Research Paper No. 17-57, Available at SSRN: or

Semyon Malamud (Contact Author)

Ecole Polytechnique Federale de Lausanne ( email )

Lausanne, 1015

Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4

Alberto Teguia

Rice University, Jesse H. Jones Graduate School of Business, Students ( email )

Houston, TX
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics