An Equilibrium Model for the Cross Section of Liquidity Premia

• 成果类型: Article
• 署名作者: Muhle-Karbe, Johannes; Shi, Xiaofei; Yang, Chen
• 署名单位: Imperial College London; University of Toronto; Columbia University; Chinese University of Hong Kong
• 刊物名称: MATHEMATICS OF OPERATIONS RESEARCH
• ISSN/ISSBN: 0364-765X
• DOI: 10.1287/moor.2022.1307
• 发表日期: 2023
• 页码: 1423-1453
• 关键词: transaction costs; portfolio choice; asset prices; EXISTENCE; returns; illiquidity; EQUATIONS

摘要

We study a risk-sharing economy where an arbitrary number of heterogeneous agents trades an arbitrary number of risky assets subject to quadratic transaction costs. For linear state dynamics, the forward-backward stochastic differential equations characterizing equilibrium asset prices and trading strategies in this context reduce to a coupled system of matrix-valued Riccati equations. We prove the existence of a unique global solution and provide explicit asymptotic expansions that allow us to approximate the corresponding equilibrium for small transaction costs. These tractable approximation formulas make it feasible to calibrate the model to time series of prices and trading volume, and to study the cross section of liquidity premia earned by assets with higher and lower trading costs. This is illustrated by an empirical case study.