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  • September 2018
  • Article
  • Review of Financial Studies

Asset Price Dynamics in Partially Segmented Markets

By: Robin Greenwood, Samuel G. Hanson and Gordon Y. Liao
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Abstract

We develop a model in which capital moves quickly within an asset class but slowly between asset classes. While most investors specialize in a single asset class, a handful of generalists can gradually reallocate capital across markets. Upon the arrival of a large supply shock, prices of risk in the directly impacted asset class become disconnected from those in others. Over the long run, capital flows between markets and prices of risk become more closely aligned. While prices in the directly impacted market initially overreact to the supply shock, we show that prices in related asset classes underreact under plausible conditions. We use the model to assess event-study evidence on the impact of recent large-scale asset purchases by central banks.

Keywords

System Shocks; Asset Pricing

Citation

Greenwood, Robin, Samuel G. Hanson, and Gordon Y. Liao. "Asset Price Dynamics in Partially Segmented Markets." Review of Financial Studies 31, no. 9 (September 2018): 3307–3343. (Internet Appendix Here.)
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About The Authors

Robin Greenwood

Finance
→More Publications

Samuel G. Hanson

Finance
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More from the Authors

    • 2020
    • Faculty Research

    Rate-Amplifying Investor Demand and the Excess Sensitivity of Long-Term Interest Rates

    By: Samuel G. Hanson, David O. Lucca and Jonathan H. Wright
    • Fall 2020
    • Brookings Papers on Economic Activity

    Business Credit Programs in the Pandemic Era

    By: Samuel Gregory Hanson, Adi Sunderam, Jeremy C. Stein and Eric Zwick
    • Fall 2020
    • Brookings Papers on Economic Activity

    Sizing Up Corporate Restructuring in the COVID Crisis

    By: Robin Greenwood, Benjamin Iverson and David Thesmar
More from the Authors
  • Rate-Amplifying Investor Demand and the Excess Sensitivity of Long-Term Interest Rates By: Samuel G. Hanson, David O. Lucca and Jonathan H. Wright
  • Business Credit Programs in the Pandemic Era By: Samuel Gregory Hanson, Adi Sunderam, Jeremy C. Stein and Eric Zwick
  • Sizing Up Corporate Restructuring in the COVID Crisis By: Robin Greenwood, Benjamin Iverson and David Thesmar
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