Asset(资产)Markets(3)

ChapterElevenAsset(资产)MarketsMainIssueNoArbitrage(套利)ConditionAssetsAnassetisacommoditythatprovidesaflowofservicesovertime.E.g.ahouse,oracomputer.Afinancialassetprovidesaflowofmoneyovertime--asecurity.AssetsTypicallyassetvaluesareuncertain.Incorporatinguncertaintyisdifficultatthisstagesowewillinsteadstudyassetsassumingthatwecanseethefuturewithperfectcertainty.Arbitrage(套利)Arbitrageistradingforprofitincommoditieswhicharenotusedforconsumption.E.g.buyingandsellingstocks,bonds,orstamps.Nouncertaintyallprofitopportunitieswillbefound.Whatdoesthisimplyforpricesovertime?ArbitrageThepricetodayofanassetisp0.Itspricetomorrowwillbep1.Shoulditbesoldnow?Therate-of-returnfromholdingtheassetisI.e.Rppp100().101RppArbitrageSelltheassetnowfor$p0,putthemoneyinthebanktoearninterestatraterandtomorrowyouhave().10rpArbitrageWhenisnotsellingbest?WhenI.e.iftherate-or-returntoholdingtheassettheinterestrate,thenkeeptheasset.Andifthensosellnowfor$p0.()().1100RprpRrRr()()1100RprpArbitrageIfallassetmarketsareinequilibriumthenforeveryasset.Hence,foreveryasset,today’spricep0andtomorrow’spricep1satisfyRrprp101().Arbitrageprp101()I.e.tomorrow’spriceisthefuture-valueoftoday’sprice.Equivalently,ppr011.I.e.today’spriceisthepresent-valueoftomorrow’sprice.ArbitrageinBondsBonds“payinterest”.Yet,whentheinterestratepaidbybanksrises,themarketpricesofbondsfall.Why?ArbitrageinBondsAbondpaysafixedstreamofpaymentsof$xperyear,nomattertheinterestratepaidbybanks.Ataninitialequilibriumtherate-of-returntoholdingabondmustbeR=r’,theinitialbankinterestrate.Ifthebankinterestraterisestor”r’thenr”Randthebondshouldbesold.Salesofbondslowertheirmarketprices.TaxationofAssetReturnsrbisthebefore-taxrate-of-returnofataxableasset.reistherate-of-returnofataxexemptasset.tisthetaxrate.Theno-arbitrageruleis:(1-t)rb=reI.e.after-taxrates-of-returnareequal.AssetswithConsumptionReturnsTheexampleofhouseA=appreciationT=implicitrentalrateP=initialinvestmenth=(T+A)/P=totalrateofreturnh=(T+A)/P=rFinancialIntermediariesBanks,brokeragesetc.–facilitatetradesbetweenpeoplewithdifferentlevelsofimpatience–patientpeople(savers)lendfundstoimpatientpeople(borrowers)inexchangeforarate-of-returnontheloanedfunds.–bothgroupsarebetteroff.