Collateral constraints and asset prices

Chabakauri, Georgy ORCID: 0009-0002-7980-269X and Yueyang Han, Brandon (2020) Collateral constraints and asset prices. Journal of Financial Economics, 138 (3). 754 - 776. ISSN 0304-405X

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Abstract

We study the effects of collateral constraints in an economy populated by investors with nonpledgeable labor incomes and heterogeneous preferences and beliefs. We show that these constraints inflate stock prices and generate spikes and crashes in price-dividend ratios and volatilities, clustering of volatilities, and leverage cycles. They also lead to substantial decreases in interest rates and increases in Sharpe ratios when investors are anxious about hitting constraints due to production crises in the economy. Furthermore, stock prices have large collateral premiums over nonpledgeable incomes. We derive asset prices and stationary distributions of the investors' consumption shares in closed form.

Item Type:	Article
Official URL:	https://www.journals.elsevier.com/journal-of-finan...
Additional Information:	© 2020 Elsevier B.V.
Divisions:	Finance
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HG Finance
JEL classification:	D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D52 - Incomplete Markets G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
Date Deposited:	29 Nov 2019 11:39
Last Modified:	17 Oct 2024 17:28
URI:	http://eprints.lse.ac.uk/id/eprint/102699

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