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Finding a Good Price in Opaque Over-the-Counter Markets

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  • Haoxiang Zhu

Abstract

This article offers a dynamic model of opaque over-the-counter markets. A seller searches for an attractive price by visiting multiple buyers, one at a time. The buyers do not observe contacts, quotes, or trades elsewhere in the market. A repeat contact with a buyer reveals the seller's reduced outside options and worsens the price offered by the revisited buyer. When the asset value is uncertain and common to all buyers, a visit by the seller suggests that other buyers could have quoted unattractive prices and thus worsens the visited buyer's inference regarding the asset value. The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.

Suggested Citation

  • Haoxiang Zhu, 2012. "Finding a Good Price in Opaque Over-the-Counter Markets," Review of Financial Studies, Society for Financial Studies, vol. 25(4), pages 1255-1285.
  • Handle: RePEc:oup:rfinst:v:25:y:2012:i:4:p:1255-1285
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    File URL: http://hdl.handle.net/10.1093/rfs/hhr140
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    Cited by:

    1. Chague, Fernando & De-Losso, Rodrigo & De Genaro, Alan & Giovannetti, Bruno, 2017. "Well-connected short-sellers pay lower loan fees: A market-wide analysis," Journal of Financial Economics, Elsevier, vol. 123(3), pages 646-670.
    2. Tang, Dragon Yongjun & Yan, Hong, 2017. "Understanding transactions prices in the credit default swaps market," Journal of Financial Markets, Elsevier, vol. 32(C), pages 1-27.
    3. Vayanos, Dimitri & Wang, Jiang, 2013. "Market Liquidity—Theory and Empirical Evidence ," Handbook of the Economics of Finance, Elsevier.
    4. Schultz, Paul, 2012. "The market for new issues of municipal bonds: The roles of transparency and limited access to retail investors," Journal of Financial Economics, Elsevier, vol. 106(3), pages 492-512.
    5. repec:eee:jetheo:v:169:y:2017:i:c:p:365-399 is not listed on IDEAS
    6. repec:eee:pacfin:v:45:y:2017:i:c:p:14-33 is not listed on IDEAS
    7. Augustin, Patrick & Subrahmanyam, Marti G. & Tang, Dragon Yongjun & Wang, Sarah Qian, 2014. "Credit Default Swaps: A Survey," Foundations and Trends(R) in Finance, now publishers, vol. 9(1-2), pages 1-196, December.

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