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Péter Kondor

is an Associate Professor of Economics at the Central European University. He obtained his PhD in finance at the London School of Economics in 2006. Between 2006 and 2008 he was an Assistant Professor of Finance at the Graduate Business School, University of Chicago. His research focuses liquidity fluctutations in asset markets, information and learning and delegated portfolio management. He is winner of the Smith Breeden First Prize for best paper in asset pricing in the Journal of Finance in 2009. He also has publications in the leading economics journals including the American Economic Review and the Review of Economic Studies.


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Péter Kondor - Dimitri Vayanos: Liquidity Risk and the Dynamics of Arbitrage Capital

We develop a dynamic model of risk-sharing in which hedgers can trade multiple risky assets with arbitrageurs. We compute the equilibrium in closed form when arbitrageurs' preferences over intertemporal consumption are logarithmic or risk-neutral with a non-negativity constraint. In both cases, expected returns, volatilities, and correlations are hump-shaped in arbitrageur wealth, and the stationary distribution of wealth becomes bimodal when hedging needs are strong. An asset's expected return can be explained by the covariance of its return with an aggregate illiquidity factor but not by the covariance of its own illiquidity with the same factor or with aggregate return. An increase in hedging needs raises arbitrageurs' Sharpe ratios in the short term, but because it speeds up wealth accumulation, it can lower Sharpe ratios under the stationary distribution.

Last modified: 2018.11.30.