A model of the liquidity structure based on asset indivisibility

Although the notion of a liquidity structure of asset yields is widely acce pted, there do not seem to be models of such a structure. Here, the liquidi ty of an asset is taken to be its transaction velocity, the amount traded p er unit time divided by the stock. Assets are assumed to be indivisible and to differ in size. Trade using such assets is implied by pairwise matching and absence-of-double-coincidence in produced goods. It is shown that a su fficiently large asset has a lower velocity and a higher yield than a suffi ciently small asset. (C) 2000 Elsevier Science B.V. All rights reserved. JE L classification: E43; G12.