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Working Paper
Equilibrium liquidity premia
This paper studies in a general framework the relative prices of perpetuities with identical dividends and different bid-ask spreads. It establishes four sets of conditions under which the liquidity premium is always positive (i.e., an asset with smaller spread always commands a higher price). To show that the liquidity premium is not necessarily positive, the paper presents two examples of general equilibrium in which the liquidity premium is sometimes negative. The paper also establishes four sets of conditions under which the price-spread relation is convex and uses results on asset price ...
Working Paper
Two equivalence theorems for government finance
This paper studies the effects of a path change in government debt composition and aggregate transfers on allocations and prices. It is shown that the effects are zero under some agent-specific transfer scheme even when markets are incomplete. If markets are complete, then the effects are zero under any transfer scheme that leaves each agent's lifetime resource unchanged if and only if agents are always collectively compensated for next period's return change. The infinite-horizon framework used has an arbitrary number of assets with arbitrary returns and an arbitrary mixture of finitely and ...
Working Paper
Rational bubbles under diverse information
This paper uses a set of post-extraction information trees to generally model diverse information and agent specific state price processes to define present and fundamental values. It shows that there can be no negative or finite bubbles and that, if agents are impatient and the aggregate endowment has a finite present value under some state price process of some agent, then there can be no bubble under this state price process for any asset with positive supply.