Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/104618
Authors: 
Eder, Armin
Fecht, Falko
Pausch, Thilo
Year of Publication: 
2014
Series/Report no.: 
Discussion Paper, Deutsche Bundesbank 31/2014
Abstract: 
We use a Diamond/Dybvig-based model with two banks operating in separate regions connected by a common asset market in which banks and sophisticated depositors invest. We study the effect of a potential run (crisis) and subsequent fire sales on the asset price in both the crisis and no-crisis state. In our model, the two are jointly determined by a cash-in-the-market pricing and a no-arbitrage condition. We find that (i) a higher crisis probability increases the liquidity premium and thus asset prices in the normal and crisis case and (ii) a higher share of sophisticated investors increases market depth and thus the crisis price while it might also raise the asset price in the normal state.
Subjects: 
liquidity risk
financial crises
contagion
asset price bubbles
JEL: 
G21
G23
G12
ISBN: 
978-3-95729-079-3
Document Type: 
Working Paper

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