Traders in a market typically have widely different, private information on the return of an asset. The equilibrium price of the asset may reflect this information more accurately if the number of traders is large enough compared to the number of the states of the world that determine the return of the asset. We study the transition from markets where prices do not reflect the information accur...

The recent economic crisis highlights the role of financial markets in allowing economic agents, including prominent banks, to speculate on the future returns of different financial assets, such as mortgage-backed securities. This paper introduces a dynamic general equilibriummodel with aggregate shocks, endogeneously incomplete markets and heterogeneous agents to investigate this role of finan...

Executive Summary The commodity markets are significantly smaller and more fragmented than other major asset markets such as equities and bonds. Hence, available benchmarks differ greatly in the composition and the calculation methodologies and give varying pictures about volatility and returns over different time periods. Nonetheless, these benchmarks demonstrate a high degree of homogeneity i...

We develop a search-based model of asset trading, in which investors of different horizons can invest in two identical assets. The asset markets are partially segmented: buyers can search for only one of the assets, but can decide which one. We show that there exists a “clientele” equilibrium where one market has more buyers and sellers, lower search times, higher trading volume, higher prices,...