Valuation in Dynamic Bargaining Markets

Lasse Heje Pedersen, Darrell Duffie and Nicolae Garleanu

No 649, Econometric Society 2004 North American Winter Meetings from Econometric Society

Abstract: We study the impact on asset prices of illiquidity associated with search and bargaining in an economy in which agents can trade only when they find each other. Marketmakers' prices are higher and bid-ask spreads are lower if investors can find each other more easily. Prices become Walrasian as investors' or marketmakers' search intensities get large. Endogenizing search intensities yields natural welfare implications. Information can fail to be revealed through trading when search is difficult.

Keywords: Search; Bargaining; Asset Markets (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Date: Written 2004-08-11
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