-  תקציר מפירסומי מרכז מחקר orif לשוק ההון  -

 Volume, Liquidity, and their Risks when Supply\Demand Curves for Shares are Finitely Elastic

This paper explores the effect of heterogeneous preferences on volume and liquidity in Merton's (1971) economy. Like others, Merton's asset-pricing model assumes that supply\demand curves are infinitely elastic, thereby forego volume and liquidity. We derive finitely elastic supply\demand curves, demonstrating that heterogeneity has major implications for volume, liquidity, and their associated risks. In particular, (i) volume and liquidity increase with heterogeneity; (ii) volume (liquidity) risk increases (declines) with heterogeneity; (iii) turnover-rate may exceed 100%; (iv) negative returns generate stronger illiquidity impacts; (v) firms issue (retire) shares when prices appreciate (depreciate); (vi) capital formation is low (high) in homogeneous (heterogeneous) markets.