Investment Horizon and Repo in the Over-the-Counter Market
AbstractThis 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.
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Bibliographic InfoPaper provided by University of Tokyo, Graduate School of Economics in its series UTokyo Price Project Working Paper Series with number 013.
Length: 32 pages
Date of creation: Nov 2013
Date of revision:
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Postal: University of Tokyo 702 Faculty of Economics, The University of Tokyo, 7-3-1 Hongo, Bunkyo-ku, Tokyo, 113-0033, Japan
Web page: http://www.e.u-tokyo.ac.jp/
More information through EDIRC
Repo; Over-the-counter market; Securities broker-dealer; Short-term investor; Haircut.;
Other versions of this item:
- Jessie Handbury & Tsutomu Watanabe & David E. Weinstein, 2013. "How Much Do Official Price Indexes Tell Us about Inflation?," NBER Working Papers 19504, National Bureau of Economic Research, Inc.
- Tsutomu Watanabe & David Weinstein & Jessie Handbury, 2014. "How Much Do Official Price Indexes Tell Us About Inflation?," 2014 Meeting Papers 73, Society for Economic Dynamics.
- Jessie Handbury & Tsutomu Watanabe & David E. Weinstein, 2013. "How Much Do Official Price Indexes Tell Us About Inflation?," CARF F-Series CARF-F-328, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-02-02 (All new papers)
- NEP-MAC-2014-02-02 (Macroeconomics)
- NEP-MON-2014-02-02 (Monetary Economics)
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