Working Paper: NBER ID: w27354
Authors: Pierre-Olivier Weill
Abstract: I review the recent literature that applies search-and-matching theory to the study of Over-the-Counter (OTC) financial markets. I formulate and solve a simple model in order to illustrate the typical assumptions and economic forces at play in existing work. I then offer thematic tours of the literature and, in the process, discuss avenues for future research.
Keywords: OTC markets; search theory; financial markets; transaction costs; trading volume
JEL Codes: G0; G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Fragmentation of trade among small groups of investors (F12) | Transaction costs (D23) |
| Fragmentation of trade among small groups of investors (F12) | Trading volume (G15) |
| Trading mechanisms (D47) | Asset prices (G19) |
| Decrease in search frictions (D83) | Increase in reservation values of customers (D16) |
| Increase in reservation values of customers (D16) | Increase in asset prices (G19) |
| Increased search intensity (D83) | Higher prices (D49) |
| Presence of systemic risk in OTC markets (E44) | Amplification of negative shocks during financial crises (F65) |
| Search frictions (J69) | Pricing dynamics (D49) |