Neutral Bargaining in Financial Over-The-Counter Markets
AbstractI 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.
CitationKim, Jin Yeub. 2019. "Neutral Bargaining in Financial Over-The-Counter Markets." AEA Papers and Proceedings, 109: 539-44. DOI: 10.1257/pandp.20191100
- C78 Bargaining Theory; Matching Theory
- D82 Asymmetric and Private Information; Mechanism Design
- G12 Asset Pricing; Trading volume; Bond Interest Rates
- G14 Information and Market Efficiency; Event Studies; Insider Trading