Valuation in Over-the-Counter Markets

Darrell Duffie, Nicolae Garleanu and Lasse Pedersen

No 12020, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We provide the impact on asset prices of search-and-bargaining frictions in over-the-counter markets. Under certain conditions, illiquidity discounts are 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. Supply shocks cause prices to jump, and then "recover" over time, with a time signature that is exaggerated by search frictions. We discuss a variety of empirical implications.

JEL-codes: G0 G1 G12 (search for similar items in EconPapers)
Date: 2006-02
New Economics Papers: this item is included in nep-fin, nep-fmk and nep-hea
Note: AP
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Citations: View citations in EconPapers (4)

Published as Duffie, Darrell, Nicolae Garleanu, and Lasse Heje Pedersen. "Valuation in Over-the-Counter Markets." Review of Financial Studies 20, 5 (2007): 1865-1900.

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Journal Article: Valuation in Over-the-Counter Markets (2007)
Working Paper: Valuation in Over-the-Counter Markets (2006)
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