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Over-the-Counter Markets

NYU Working Paper No. S-MF-04-05
2004
  • 0
    Citations
  • 6,316
    Usage
  • 0
    Captures
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Metric Options:   Counts1 Year3 Year

Metrics Details

  • Usage
    6,316
    • Abstract Views
      6,117
    • Downloads
      199
  • Ratings
    • Download Rank
      306,910

Paper Description

We study how intermediation and asset prices in over-the-counter markets are affected by illiquidity associated with search and bargaining. We compute explicitly the prices at which investors trade with each other as well as marketmakers' bid and ask prices in a dynamic model with strategic agents. Bid-ask spreads are lower if investors can more easily find other investors, or have easier access to multiple marketmakers. With a monopolistic marketmaker, bid-ask spreads are higher if investors have easier access to the marketmaker. We characterize endogenous search and welfare, and discuss empirical implications.

Bibliographic Details

Darrell Duffie; Nicolae Gârleanu; Lasse Heje Pedersen

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