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schemes affect liquidity provision and asset prices. Investors face a trade-off between risk and return. At the benefit of a … liquidity provision to force traders to trade at a lower price. By contrast, bonus caps make traders value the asset less than … investors. This should encourage liquidity provision and decrease prices. In contrast to these predictions, we find that under …
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Can there be too much trading in financial markets? To address this question, we construct a dynamic general equilibrium model, where agents face idiosyncratic preference and technology shocks. A financial market allows agents to adjust their portfolio of liquid and illiquid assets in response...
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