Neutral Bargaining in Financial Over-The-Counter Markets

AEA PAPERS AND PROCEEDINGS VOL. 109, MAY 2019 (pp. 539-44)

11 Pages Posted: 19 Dec 2018 Last revised: 15 May 2019

See all articles by Jin Yeub Kim

Jin Yeub Kim

Yonsei University - School of Economics

Date Written: May 13, 2019

Abstract

I study bargaining over prices between two investors in financial over-the-counter markets with asymmetric information. I focus on environments in which an asset owner has private information about both her liquidity state and asset quality, and so a buyer is uncertain about the owner's true motive for selling—whether it is because of a liquidity need or because of a low asset valuation. I apply the concept of neutral bargaining solution to characterize the prices at which the investors trade with each other. I illustrate the implications for asset prices in over-the-counter markets where private information may be prevalent.

Keywords: bargaining, asymmetric information, mechanism design, interim efficiency, neutral bargaining solution, asset pricing, over-the-counter markets

JEL Classification: C78, D82, G12, G14

Suggested Citation

Kim, Jin Yeub, Neutral Bargaining in Financial Over-The-Counter Markets (May 13, 2019). AEA PAPERS AND PROCEEDINGS VOL. 109, MAY 2019 (pp. 539-44), Available at SSRN: https://ssrn.com/abstract=3294396 or http://dx.doi.org/10.2139/ssrn.3294396

Jin Yeub Kim (Contact Author)

Yonsei University - School of Economics ( email )

Seoul
Korea, Republic of (South Korea)

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