Over-the-Counter Markets
نویسندگان
چکیده
We study how intermediation and asset prices in over-the-counter markets are affected by illiquidity associated with search and bargaining. We compute explicitly the prices at which investors trade with each other, as well as marketmakers’ bid and ask prices, in a dynamic model with strategic agents. Bid–ask spreads are lower if investors can more easily find other investors or have easier access to multiple marketmakers. With a monopolistic marketmaker, bid–ask spreads are higher if investors have easier access to the marketmaker. We characterize endogenous search and welfare, and discuss empirical implications.
منابع مشابه
Search Theory in Financial Markets
1. First, a number of financial markets—often called over-the-counter or “OTC” markets—are actually best described by a typical search and bargaining model; in these markets, investors have to locate a counterparty themselves, and once they find a suitable trading partner the two are free to trade at any mutually agreeable price. Hence, these models represent the most natural framework to study...
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