Equilibrium Price of Immediacy and Infrequent Trade

The paper studies the equilibrium value of bid-ask spreads and time- to-trade in a continuous-time, intermediated financial market. The endogenous spreads are the price at which brokers are willing to offer immediacy. In case intermediaries pay trading costs, it includes them too. We determine equilibrium trading policies, prices, returns and liquidity premium, as well as value functions of all the agents and intervention barriers of the investors, who trade only infrequently. Intervention times are endogenous too. We show that competition among brokers does not drive the spread to zero - and does not make trade continuous - unless investors are risk-neutral. The paper predicts spreads and times between successive trades increasing with the difference in agents' risk attitudes. Bid-ask prices and trading barriers react asymetrically to an increase in the difference of risk aversions. They are symmetric in trading costs