Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/87723
Authors: 
Brumm, Johannes
Grill, Michael
Kubler, Felix
Schmedders, Karl
Year of Publication: 
2013
Series/Report no.: 
Discussion Paper, Deutsche Bundesbank 44/2013
Abstract: 
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 value 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.
Subjects: 
collateral constraints
collateral premium
endogenous margins
heterogeneous agents
leverage
JEL: 
D53
G11
G12
ISBN: 
978-3-86558-974-3
Document Type: 
Working Paper

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