Search and endogenous concentration of liquidity in asset markets

  title={Search and endogenous concentration of liquidity in asset markets},
  author={Dimitri Vayanos and Tan Wang},
  journal={J. Economic Theory},
We develop a search-based model of asset trading, in which investors of different horizons can invest in two assets with identical payoffs. The asset markets are partially segmented: buyers can search for only one asset, but can decide which one. We show the existence of a “clientele” equilibrium where all short-horizon investors search for the same asset. This asset has more buyers and sellers, lower search times, and trades at a higher price relative to its identical-payoff counterpart. The… CONTINUE READING
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