Skip to main content
Article thumbnail
Location of Repository

Search and endogenous concentration of liquidity in asset markets

By Dimitri Vayanos and Tan Wang


We develop a search-based model of asset trading, in which investors of different horizons can invest in two identical assets. The asset markets are partially segmented: buyers can search for only one asset, but can decide which one. We show that there exists a "clientele" equilibrium where one market has more buyers and sellers, lower search times, higher trading volume, higher prices, and short-horizon investors. This equilibrium dominates the ones where the two markets are identical, implying that the concentration of liquidity in one asset is socially desirable. At the same time, too many buyers decide to search for the liquid asset

Topics: HG Finance
Publisher: Econometric Society 2004 North American Winter Meetings
Year: 2004
OAI identifier:
Provided by: LSE Research Online
Download PDF:
Sorry, we are unable to provide the full text but you may find it at the following location(s):
  • (external link)
  • (external link)
  • (external link)
  • Suggested articles


    1. (2004a): “Valuation in Over-the-CounterMarkets,” working paper, doi
    2. (2000). A Model of the Liquidity Yield Structure Based on Asset Indivisibility,” doi
    3. (2005). A Search-Based Theory of the On-the-Run Phenomenon,” working paper, London School of Economics. doi
    4. (1988). A Theory of Intraday Patterns: Volume and Price Variability,” doi
    5. (1989). Achilles and Methuselah: A Parable of Liquidity,” unpublished notes,
    6. (2002). Are Larger Treasury Issues More Liquid? Evidence from Bill Reopenings,” doi
    7. (2004). Asset Prices and Trading Volume under Fixed Transaction Costs,” doi
    8. (1986). Asset Pricing and the Bid-Ask Spread,” doi
    9. (1985). Bid, Ask, and Transaction Prices in a Specialist Market with Heterogeneously Informed Traders,” doi
    10. (1992). Bond Returns, Liquidity and Missing Data,” doi
    11. (1986). Capital Market Equilibrium with Transaction Costs,” doi
    12. (2002). Competitive Pricing and Efficiency in doi
    13. (1997). Competitive Search Equilibrium,” doi
    14. (2002). Competitive Search Markets for Durable doi
    15. (1985). Continuous Auctions and doi
    16. (2005). Corporate Bond Liquidity and Its Effect on Bond Yield Spreads,” working paper, doi
    17. (1980). Dealership Market: Market-Making with doi
    18. (1996). Evaluating the Effects of Incomplete Markets on Risk Sharing and Asset Pricing,” doi
    19. (2005). Flight to Quality, Flight to Liquidity, and the Pricing of Risk,” working paper, London School of Economics. doi
    20. (2000). Historical Default Rates of Corporate Bond Issuers, 1920-1999,” Global Credit Research, Moody’s Investor Service,
    21. (2003). Knife Edge or Plateau: When Do Market Models Tip?,” working paper, doi
    22. (2005). Liquidity Premia in Dynamic Bargaining Markets,” working paper, doi
    23. (2002). Liquidity Shocks and Equilibrium Liquidity Premia,” doi
    24. (1998). New Developments in Models of Search in the Labor Market,” doi
    25. (1989). On Money as a Medium of Exchange,” doi
    26. (1982). Securities Markets, doi
    27. (1988). The Division of Markets is Limited by the
    28. (1983). The Dynamics of Dealer Markets under doi
    29. (1999). The Treasury Securities Market: Overview and Recent Developments”, Federal Reserve Bulletin,
    30. (1989). Trading Volume and Asset Liquidity,” doi
    31. (1998). Transaction Costs and Asset Prices: A Dynamic Equilibrium Model,” doi
    32. (1982). Wage Determination and Efficiency in Search Equilibrium,” doi

    To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.