Investment Horizon and Repo in the Over-the-Counter Market

Hajime Tomura
Authors registered in the RePEc Author Service: David Weinstein

No 13, UTokyo Price Project Working Paper Series from University of Tokyo, Graduate School of Economics

Abstract: This paper presents a three-period model featuring a short-term investor and dealers in an over-the-counter bond market. A short-term investor invests cash in the short term because of a need to pay cash soon. This time constraint lowers the resale price of bonds held by a short-term investor through bilateral bargaining in an over-the-counter market. Ex-ante, this hold-up problem explains the use of a repo by a short-term investor, a positive haircut due to counterparty risk, and the fragility of a repo market. This result holds without any risk to the dividends and principals of underlying bonds or asymmetric information.

Keywords: Repo; Over-the-counter market; Securities broker-dealer; Short-term investor; Haircut. (search for similar items in EconPapers)
JEL-codes: G24 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2013-11
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Investment Horizon and Repo in the Over‐the‐Counter Market (2016)
Working Paper: Investment Horizon and Repo in the Over-the-Counter Market (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:upd:utppwp:013

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