Market run-ups, market freezes, inventories, and leverage

Philip Bond and Yaron Leitner

No 13-14, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: This paper supersedes Working Paper No. 12-8.> We study trade between an informed seller and an uninformed buyer who have existing inventories of assets similar to those being traded. We show that these inventories may lead to prices that increase even absent changes in fundamentals (a .run-up.), but may also make trade impossible (a .freeze.) and hamper information dissemination. Competition may amplify the run-up by inducing buyers to enter loss-making trades at high prices to prevent a competitor from purchasing at a lower price and releasing bad news about inventory values. Inventories also prevent seller competition from delivering the Bertrand outcome, in which prices match sellers? valuations. We discuss both empirical implications and implications for regulatory intervention in illiquid markets.

Keywords: Mortgages; Markets; Inventories; Trade (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-com and nep-cta
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.philadelphiafed.org/-/media/frbp/asset ... rs/2013/wp13-14R.pdf (application/pdf)

Related works:
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:fip:fedpwp:13-14

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of Philadelphia Contact information at EDIRC.
Bibliographic data for series maintained by Beth Paul ().