EconPapers    
Economics at your fingertips  
 

A Search-Based Theory of the On-the-Run Phenomenon

Dimitri Vayanos and Pierre-Olivier Weill

No 5965, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We propose a model in which assets with identical cash flows can trade at different prices. Infinitely-lived agents can establish long positions in a search spot market, or short positions by first borrowing an asset in a search repo market. We show that short-sellers can endogenously concentrate in one asset because of search externalities and the constraint that they must deliver the asset they borrowed. That asset enjoys greater liquidity, measured by search times, and a higher lending fee ('specialness'). Liquidity and specialness translate into price premia that are consistent with no-arbitrage. We derive closed-form solutions for small frictions, and can generate price differentials in line with observed on-the-run premia.

Keywords: Search; Liquidity; Asset pricing; On-the-run bonds (search for similar items in EconPapers)
JEL-codes: D8 G1 (search for similar items in EconPapers)
Date: 2006-11
New Economics Papers: this item is included in nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19) Track citations by RSS feed

Downloads: (external link)
https://cepr.org/publications/DP5965 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: A Search‐Based Theory of the On‐the‐Run Phenomenon (2008) Downloads
Working Paper: A search-based theory of the on-the-run phenomenon (2007) Downloads
Working Paper: A Search-Based Theory of the On-the-Run Phenomenon (2007) Downloads
Working Paper: A Search-Based Theory of the On-the-Run Phenomenon (2006) Downloads
Working Paper: A search-based theory of the on-the-run phenomenon (2005) Downloads
Working Paper: A Search-Based Theory of the On-the-Run Phenomenon (2005) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:5965

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP5965

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().

 
Page updated 2023-12-22
Handle: RePEc:cpr:ceprdp:5965