Over-the-Counter Markets for Non-Standardized Assets

71 Pages Posted: 27 Feb 2015 Last revised: 3 Aug 2021

See all articles by Anton Tsoy

Anton Tsoy

University of Toronto - Department of Economics

Date Written: July 31, 2021

Abstract

Over-the-counter trades often involve non-standardized assets, such as municipal/corporate bonds, derivatives, real estate, and structured products. I study a dynamic equilibrium model of over-the-counter markets with both stochastic search delays and bargaining delays arising from imperfect asset standardization. Two types of delays have opposite effects on the variety of traded assets implying that greater asset standardization but also greater market opacity improve market liquidity. Broker-dealers who intermediate bargaining and have the commitment power to terminate negotiations can improve efficiency even when they do not provide immediacy to investors.

Keywords: over-the-counter markets, search friction, bargaining delay, standardized assets, broker-dealers

JEL Classification: G1, D82, C78

Suggested Citation

Tsoy, Anton, Over-the-Counter Markets for Non-Standardized Assets (July 31, 2021). Available at SSRN: https://ssrn.com/abstract=2570031 or http://dx.doi.org/10.2139/ssrn.2570031

Anton Tsoy (Contact Author)

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S3G7
Canada

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