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Neutral Bargaining in Financial Over-The-Counter Markets

Author

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  • Jin Yeub Kim

Abstract

I study bargaining over prices between two investors in financial over-the-counter markets with asymmetric information. I focus on environments in which an asset owner has private information about both her liquidity state and asset quality, and so a buyer is uncertain about the owner's true motive for selling—whether it is because of a liquidity need or because of a low asset valuation. I apply the concept of neutral bargaining solution to characterize the prices at which the investors trade with each other. I illustrate the implications for asset prices in over-the-counter markets where private information may be prevalent.

Suggested Citation

  • Jin Yeub Kim, 2019. "Neutral Bargaining in Financial Over-The-Counter Markets," AEA Papers and Proceedings, American Economic Association, vol. 109, pages 539-544, May.
    • Handle: RePEc:aea:apandp:v:109:y:2019:p:539-44
    Note: DOI: 10.1257/pandp.20191100
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    File URL: https://www.aeaweb.org/doi/10.1257/pandp.20191100
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    Citations

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    Cited by:

    1. Jin Yeub Kim, 2022. "Neutral public good mechanisms," PLOS ONE, Public Library of Science, vol. 17(4), pages 1-16, April.
    2. Iraklis Kollias & John Leventides & Vassilios G. Papavassiliou, 2022. "On the solution of games with arbitrary payoffs: An application to an over-the-counter financial market," Working Papers 202302, Geary Institute, University College Dublin.

    More about this item

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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