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Asset prices and liquidity in an exchange economy
Abstract: I develop an asset-pricing model in which financial assets are valued for their liquidity - the extent to which they are useful in facilitating exchange - as well as for being claims to streams of consumption goods. The implications for average asset returns, the equity-premium puzzle and the risk-free rate puzzle, are explored in a version of the model that nests the work of Mehra and Prescott (1985).
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Provider: Federal Reserve Bank of Minneapolis
Part of Series: Staff Report
Publication Date: 2006
Number: 373