Search in Over-the-Counter Markets

52 Pages Posted: 4 Aug 2022 Last revised: 17 Oct 2022

See all articles by Chaojun Wang

Chaojun Wang

University of Pennsylvania - The Wharton School

Date Written: July 27, 2022


In a tractable model of over-the-counter markets where each investor can arbitrarily distribute her search capacity across other investors, the holdings of an asset are endogenously concentrated among a subgroup of investors. Investors who are more likely to hold the asset search among those less likely to hold it, and vice versa. When directed search is allowed in those existing random search models that endogenize intermediation, intermediation ceases to be an equilibrium outcome and instead the concentration of asset holdings arises endogenously. My model explains the persistent imbalance between banks’ funding needs, and contributes novel predictions of asset concentration across investors and asymmetric price dispersion.

Keywords: Over-the-counter, search friction, directed search, random search, asset concentration, intermediation

JEL Classification: D83, D85

Suggested Citation

Wang, Chaojun, Search in Over-the-Counter Markets (July 27, 2022). Available at SSRN: or

Chaojun Wang (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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