Valuation in Over-the-Counter Markets
39 Pages Posted: 12 Nov 2008
There are 3 versions of this paper
Valuation in Over-the-Counter Markets
Valuation in Over-the-Counter Markets
Valuation in Over-the-Counter Markets
Date Written: March 2004
Abstract
We provide the impact on asset prices of search-and-bargaining frictions in over-the-counter markets. Under natural conditions, prices are lower and illiquidity discounts 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. 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
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Valuation in Over-the-Counter Markets
By Darrell Duffie, Nicolae Garleanu, ...
-
Valuation in Over-the-Counter Markets
By Nicolae Garleanu, Darrell Duffie, ...
-
Valuation in Over-the-Counter Markets
By Darrell Duffie, Nicolae Garleanu, ...