Get 20M+ Full-Text Papers For Less Than $1.50/day. Subscribe now for You or Your Team.

Learn More →

The Same Bond at Different Prices: Identifying Search Frictions and Selling Pressures

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 http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Review of Financial Studies Oxford University Press

The Same Bond at Different Prices: Identifying Search Frictions and Selling Pressures

The Review of Financial Studies , Volume 25 (4) – Apr 7, 2012

Loading next page...
 
/lp/oxford-university-press/the-same-bond-at-different-prices-identifying-search-frictions-and-j3Fmuq0KTw

References (0)

References for this paper are not available at this time. We will be adding them shortly, thank you for your patience.

Publisher
Oxford University Press
Copyright
© 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.
ISSN
0893-9454
eISSN
1465-7368
DOI
10.1093/rfs/hhr093
Publisher site
See Article on Publisher Site

Abstract

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

Journal

The Review of Financial StudiesOxford University Press

Published: Apr 7, 2012

Keywords: JEL D40 D83 G01 G12

There are no references for this article.