Browsing by Subject "Asset Pricing"
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Item Essays on Decentralized Asset Markets(2023-07) Dalani, LejviThis dissertation consists of three chapters. In chapter 1, we examine the regulations implemented following the financial crisis, focusing on the aspects that had the greatest impact on the market for US corporate bonds. Chapter 2 focuses on decentralized bilateral trade in asset markets, examining price and quantity behavior in the presence of coordination frictions, capacity constraints, and risk aversion in both small and large markets. We demonstrate that the markup over expected asset returns in equilibrium is influenced by the buyer-to-seller ratio and the level of buyer risk aversion. Sellers ration buyers in equilibrium, and the level of rationing depends negatively on the buyer-seller ratio and positively on the concavity of the buyer's utility function. Coordination between buyers intensifies rationing, increases prices, and reduces buyer welfare. We then emphasize the importance of model choice by comparing our results to a model of random search and find that the latter can produce too much or too little seller entry depending on which side of the Hosios condition is analyzed. In chapter 3, we develop a theory of decentralized trade in Over-The-Counter markets, where bank and nonbank-affiliated dealers trade with individual investors and one another. Dealers build inventory positions and face heterogeneous costs of inventory and search. We apply our theory to the US Corporate Bonds market and find that bank-affiliated dealers have higher inventory costs and lower search costs. As a result, they hold lower inventory and charge higher bid-ask spreads while trading higher quantities compared to nonbank-affiliated dealers, in line with recent empirical findings. Higher inventory costs induce bank dealers to commit more resources when selling, which increases sale prices and reduces buyer participation. When they act as buyers, the lower search costs allow them to commit a higher number of buyers to the market, which induces lower prices. We then use the model to run policy experiments on inventory costs, search frictions, and barriers to entry into the market.Item Essays on dynamic economies with frictions.(2010-07) Slavik, CtiradThis dissertation consists of two essays. In the first essay we analyze the role of frictions in the pattern of intergenerational transfers. Simple theories about why parents give money to their children fail to explain a central puzzle in inter-generational transfers: While they are alive, parents give more money to their poorer children. When they leave bequests, most parents divide money equally among their children regardless of their income. We develop a model in which parents cannot observe their children's productivity. We show that parents differentiate between gifts and bequests to help their children more effectively. Parents are able to use future income uncertainty to provide the children with more help and better incentives. We show that in our model poor children get more in gifts than richer children and bequests are equal for all children under some parameterizations. We build a richer quantitative model to compare the explanatory power of our model as compared with a frictionless environment when parameters are picked to match US income and wealth data. We find that our model significantly reduces the costs needed to rationalize equal division of bequests relative to a frictionless environment. In the second essay we analyze the role of financial frictions in high asset price volatility. Existing dynamic general equilibrium models have have not been fully successful at explaining the high volatility of asset prices that we observe in the data. We construct a general equilibrium model with heterogeneous firms and financial frictions that addresses this issue. In each period only a fraction of firms can start new projects, which cannot be fully financed externally due to a financial constraint. We allow the tightness of the financial constraint to vary over time. Fluctuations in the tightness of the financial constraint result in fluctuations in the supply of equity and consequently in the price of equity. We calibrate the model to the U.S. data to assess the quantitative importance of fluctuations in the tightness of the financial constraint. The model generates a volatility in the price of equity comparable to the aggregate stock market while also fitting key aspects of the behavior of aggregate quantities.