The role of trading frictions in real asset markets

Gavazza, Alessandro (2010): The role of trading frictions in real asset markets.

Abstract

This paper investigates how trading frictions vary with the thickness of the asset market by examining patterns of asset allocations and prices in commercial aircraft markets. The empirical analysis indicates that assets with a thinner market are less liquid—i.e., more difficult to sell. Thus, firms hold on longer to them amidst profitability shocks. Hence, when markets for assets are thin, firms’ average productivity and capacity utilization are lower, and the dispersions of productivity and of capacity utilization are higher. In turn, prices of assets with a thin market are lower and have a higher dispersion.

• Item Type: MPRA Paper
• Language: English
• Keywords: decentralized markets, search, productivity, asset prices, aircraft.
• Subjects: G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates; C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C78 - Bargaining Theory ; Matching Theory; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E22 - Investment ; Capital ; Intangible Capital ; Capacity; L - Industrial Organization > L6 - Industry Studies: Manufacturing > L62 - Automobiles ; Other Transportation Equipment ; Related Parts and Equipment; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search ; Learning ; Information and Knowledge ; Communication ; Belief ; Unawareness

References

Gavazza, Alessandro. 2009. “Leasing and Secondary Markets: Theory and Evidence from Commercial Aircraft.” Mimeo, New York University.

Gavazza, Alessandro. 2010. “Asset Liquidity and Financial Contracts: Evidence from Aircraft Leases.” Journal of Financial Economics, 95(1): 62-84.