Valuation in Over-the-Counter Markets
We 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 is larger. Supply shocks cause prices to jump, and then 'recover' over time, with a time signature that is exaggerated by search frictions: The price jump is larger and the recovery is slower in less liquid markets. We discuss a variety of empirical implications. , Oxford University Press.
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Volume (Year): 20 (2007)
Issue (Month): 6 (November)
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- Acharya, Viral V. & Pedersen, Lasse Heje, 2005.
"Asset pricing with liquidity risk,"
Journal of Financial Economics,
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- Viral V. Acharya & Lasse Heje Pedersen, 2004. "Asset Pricing with Liquidity Risk," NBER Working Papers 10814, National Bureau of Economic Research, Inc.
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- Amihud, Yakov & Mendelson, Haim & Pedersen, Lasse Heje, 2005. "Liquidity and Asset Prices," MPRA Paper 24768, University Library of Munich, Germany.
- Amihud, Yakov & Mendelson, Haim, 1986. "Asset pricing and the bid-ask spread," Journal of Financial Economics, Elsevier, vol. 17(2), pages 223-249, December. Full references (including those not matched with items on IDEAS)
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