Abstract
The recognizability of assets is embedded into a standard search model to determine liquidity returns. Assuming that money is universally recognizable but bond is not, two types of trades arise-one where both money and bond are accepted and the other where only money is accepted as a medium of exchange-depending on a seller's strategy of accepting or rejecting the bond of unrecognized quality and a buyer's strategy of carrying the counterfeit bond. Equilibrium restrictions imply that the liquidity differentials between money and bond tend to increase with the recognizability problem. Money commands higher liquidity than bond by providing additional liquidity service when sellers reject the bond of unrecognized quality as well as when they recognize counterfeit bond. The coexistence of money and bond requires a higher full (liquidity augmented) return for bond than money, implying a positive liquidity premium.
| Original language | English |
|---|---|
| Pages (from-to) | 241-259 |
| Number of pages | 19 |
| Journal | Korean Economic Review |
| Volume | 28 |
| Issue number | 2 |
| Publication status | Published - 2012 Dec 1 |
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Keywords
- Asset Pricing
- Coexistence
- Liquidity
- Recognizability
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)
Cite this
Recognizability and liquidity of assets. / Kim, Young Sik; Lee, Manjong.
In: Korean Economic Review, Vol. 28, No. 2, 01.12.2012, p. 241-259.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Recognizability and liquidity of assets
AU - Kim, Young Sik
AU - Lee, Manjong
PY - 2012/12/1
Y1 - 2012/12/1
N2 - The recognizability of assets is embedded into a standard search model to determine liquidity returns. Assuming that money is universally recognizable but bond is not, two types of trades arise-one where both money and bond are accepted and the other where only money is accepted as a medium of exchange-depending on a seller's strategy of accepting or rejecting the bond of unrecognized quality and a buyer's strategy of carrying the counterfeit bond. Equilibrium restrictions imply that the liquidity differentials between money and bond tend to increase with the recognizability problem. Money commands higher liquidity than bond by providing additional liquidity service when sellers reject the bond of unrecognized quality as well as when they recognize counterfeit bond. The coexistence of money and bond requires a higher full (liquidity augmented) return for bond than money, implying a positive liquidity premium.
AB - The recognizability of assets is embedded into a standard search model to determine liquidity returns. Assuming that money is universally recognizable but bond is not, two types of trades arise-one where both money and bond are accepted and the other where only money is accepted as a medium of exchange-depending on a seller's strategy of accepting or rejecting the bond of unrecognized quality and a buyer's strategy of carrying the counterfeit bond. Equilibrium restrictions imply that the liquidity differentials between money and bond tend to increase with the recognizability problem. Money commands higher liquidity than bond by providing additional liquidity service when sellers reject the bond of unrecognized quality as well as when they recognize counterfeit bond. The coexistence of money and bond requires a higher full (liquidity augmented) return for bond than money, implying a positive liquidity premium.
KW - Asset Pricing
KW - Coexistence
KW - Liquidity
KW - Recognizability
UR - http://www.scopus.com/inward/record.url?scp=84871974664&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=84871974664&partnerID=8YFLogxK
M3 - Article
AN - SCOPUS:84871974664
VL - 28
SP - 241
EP - 259
JO - Korean Economic Review
JF - Korean Economic Review
SN - 0254-3737
IS - 2
ER -