The Same Bond at Different Prices: Identifying Search Frictions and Selling Pressures
I propose a new measure that identifies when the market price of an over-the-counter traded asset is below its fundamental value due to selling pressure. The measure is the difference between prices paid by small traders and those paid by large traders. In a model for over-the-counter trading with search frictions and periods with selling pressures, I show that this measure identifies liquidity crises (i.e., high number of forced sellers). Using a structural estimation, the model is able to identify liquidity crises in the U.S. corporate bond market based on the relative prices paid by small and large traders. New light is shed on two crises, the downgrade of General Motors and Ford in 2005 and the subprime crisis The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: email@example.com., Oxford University Press.
Volume (Year): 25 (2012)
Issue (Month): 4 ()
|Contact details of provider:|| Postal: Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.|
Web page: http://www.rfs.oupjournals.org/
More information through EDIRC
|Order Information:||Web: http://www4.oup.co.uk/revfin/subinfo/|
When requesting a correction, please mention this item's handle: RePEc:oup:rfinst:v:25:y:2012:i:4:p:1155-1206. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.