Valuation in Over-the-Counter Markets

Duffie, Darrell; Garleanu, Nicolae; Pedersen, Lasse Heje

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Valuation in Over-the-Counter Markets

NYU Working Paper No. FIN-03-041

46 Pages Posted: 11 Nov 2008

See all articles by Darrell Duffie

Darrell Duffie

Stanford University - Graduate School of Business; National Bureau of Economic Research (NBER); Canadian Derivatives Institute

Nicolae Garleanu

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Lasse Heje Pedersen

AQR Capital Management, LLC; Copenhagen Business School - Department of Finance; New York University (NYU); Centre for Economic Policy Research (CEPR)

There are 3 versions of this paper

Date Written: September 2003

Abstract

We provide the impact on asset prices of trade by search and bargaining. Under natural conditions, prices are higher if investors can find each other more easily, if sellers have more bargaining power, or if the fraction of qualified owners is greater. If agents face risk limits, then higher volatility leads to greater difficulty locating unconstrained buyers, resulting in lower prices. Information can fail to be revealed through trading when search is difficult. We discuss a variety of financial applications and testable implications.

Suggested Citation: Suggested Citation

Duffie, James Darrell and Garleanu, Nicolae Bogdan and Pedersen, Lasse Heje, Valuation in Over-the-Counter Markets (September 2003). NYU Working Paper No. FIN-03-041, Available at SSRN: https://ssrn.com/abstract=1299488