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SSRN
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Collateral Requirements and Asset Prices

SSRN Electronic Journal
2013
  • 10
    Citations
  • 5,048
    Usage
  • 7
    Captures
  • 0
    Mentions
  • 0
    Social Media
Metric Options:   Counts1 Year3 Year

Metrics Details

  • Citations
    10
    • Citation Indexes
      10
  • Usage
    5,048
    • Abstract Views
      4,619
    • Downloads
      429
  • Captures
    7
  • Ratings
    • Download Rank
      136,691

Article Description

Many assets derive their value not only from future cash flows but also from their ability to serve as collateral. In this paper, we investigate this collateral premium and its impact on asset returns in an infinite-horizon general equilibrium model with heterogeneous agents facing collateral constraints for borrowing. We document that borrowing against collateral substantially increases the return volatility of long-lived assets. Moreover, otherwise identical assets with different degrees of collateralizability exhibit substantially different return dynamics because their prices contain a sizable collateral premium that varies over time. This premium can be positive even for assets that never pay dividends.

Bibliographic Details

Johannes Brumm; Michael Grill; Felix E. Kubler; Karl H. Schmedders

Elsevier BV

Bubbles; collateral constraints; collateral premium; endogenous margins.

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