Template-Type: ReDIF-Paper 1.0
Author-Name: Athanasios Geromichalos
Author-Name-First: Athanasios
Author-Name-Last: Geromichalos
Author-Name: Jiwon Lee
Author-Name-First: Jiwon
Author-Name-Last: Lee
Author-Name: Seungduck Lee
Author-Name-First: Seungduck
Author-Name-Last: Lee
Author-Name: Keita Oikawa
Author-Name-First: Keita
Author-Name-Last: Oikawa
Author-Workplace-Name: Department of Economics, University of California Davis
Title: Over-the-Counter Trade and the Value of Assets as Collateral
Abstract: We study asset pricing within a general equilibrium model where unsecured credit is ruled out,
 and a real asset helps agents carry out mutually beneficial transactions by serving as collateral.
 A unique feature of our model is that the agent who provides the loan might have a low valu-
 ation for the collateral asset. Nevertheless, the lender rationally chooses to accept the collateral
 because she can access a secondary asset market where she can sell the asset. Following a recent
 strand of the finance literature, based on the influential work of Duffie, G?arleanu, and Pedersen
 (2005), we model this secondary asset market as an over-the-counter market characterized by
 search and bargaining frictions. We study how the asset?s property to serve as collateral affects
 its equilibrium price, and how the asset price and the economy?s welfare are affected by the
 degree of liquidity in the secondary asset market.
Length: 32
File-URL: https://repec.dss.ucdavis.edu/files/uZuYqmLcQhun2uFYiZM4rxae/14-3.pdf
File-Format: application/pdf
Number: 96
Classification-JEL: E31, E50, E52, G12
KeyWords: asset prices, collateral, monetary-search models, liquidity, over-the-counter markets
Creation-Date: 20141111
Handle: RePEc:cda:wpaper:96