Valuation in Over-the-Counter Markets

CEPR Discussion Paper No. 5491
2006
  • 83
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  • 5,860
    Usage
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Metric Options:   Counts1 Year3 Year

Metrics Details

  • Citations
    83
    • Citation Indexes
      83
  • Usage
    5,860
    • Abstract Views
      5,830
    • Downloads
      30

Paper Description

We provide the impact on asset prices of search-and-bargaining frictions in over-the-counter markets. Under certain conditions, illiquidity discounts are higher when counterparties are harder to find, when sellers have less bargaining power, when the fraction of qualified owners is smaller, or when risk aversion, volatility, or hedging demand are larger. Supply shocks cause prices to jump, and then 'recover' over time, with a time signature that is exaggerated by search frictions. We discuss a variety of empirical implications.

Bibliographic Details

Darrell Duffie; Nicolae Garleanu; Lasse Heje Pedersen

Search; bargaining; liquidity; risk; asset pricing

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