Researchers from New York University Detail Findings in Economic Research
Prices of assets with a thin market are lower and have a higher dispersion.
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According to the authors of recent research published in the journal American Economic Review, "This paper investigates how trading frictions vary with the thickness of the asset market by examining patterns of asset allocations and prices in commercial aircraft markets. The empirical analysis indicates that assets with a thinner market are less liquid-i.e., more difficult to sell."
"Thus, firms hold on longer to them amid profitability shocks. Hence, when markets for assets are thin, firms' average productivity and capacity utilization are lower, and the dispersions of productivity and of capacity utilization are higher," wrote A. Gavazza and colleagues, New York University.
The researchers concluded: "In turn, prices of assets with a thin market are lower and have a higher dispersion. (JEL A12, L11, L93)."
Gavazza and colleagues published their study in American Economic Review (The Role of Trading Frictions in Real Asset Markets. American Economic Review, 2011;101(4):1106-1143).
For additional information, contact A. Gavazza, New York University, Leonard N Stern School Business, 44 W 4th St., New York City, NY 10012, United States.
The publisher's contact information for the journal American Economic Review is: American Economic Association, 2014 Broadway, Ste. 305, Nashville, TN 37203, USA.
This article was prepared by Economics Week editors from staff and other reports. Copyright 2011, Economics Week via VerticalNews.com.