Large Investors: Implications for Equilibrium Asset Returns (2003)
| Venue: | Shock Absorption, and Liquidity,” Mimeo, Board of Governors of the Federal Reserve System |
| Citations: | 10 - 0 self |
BibTeX
@INPROCEEDINGS{Pritsker03largeinvestors:,
author = {Matthew Pritsker},
title = {Large Investors: Implications for Equilibrium Asset Returns},
booktitle = {Shock Absorption, and Liquidity,” Mimeo, Board of Governors of the Federal Reserve System},
year = {2003}
}
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Abstract
The growing share of financial assets that are held and managed by large institutional investors whose trades move prices contradicts the traditional asset pricing paradigm which assumes markets are competitive with small price-taking players. This paper relaxes the traditional price-taking assumption and instead presents a dynamic multi-asset, multi-large participant model of imperfect competition in risky asset markets. Because of imperfect competition, some investors face imperfect market liquidity when rebalancing their portfolios. The paper examines how imperfect competition in asset markets affects equilibrium asset pricing, liquidity, shock absorption, and the transmission of shocks among assets. The paper also presents a framework for examining how news or rumors about some market participants financial distress affects equilibrium asset prices and market liquidity. A simulation analysis of the effects of news and rumors has yet to be completed.
