Valuation in Over-the-Counter Markets
AbstractWe 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.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12020.
Date of creation: Feb 2006
Date of revision:
Publication status: 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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Other versions of this item:
- G0 - Financial Economics - - General
- G1 - Financial Economics - - General Financial Markets
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-02-27 (All new papers)
- NEP-FIN-2006-02-26 (Finance)
- NEP-FMK-2006-03-18 (Financial Markets)
- NEP-HEA-2006-03-12 (Health Economics)
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