Distressed sales in OTC markets

Selcuk, Cemil ORCID: https://orcid.org/0000-0002-2267-604X 2017. Distressed sales in OTC markets. The Manchester School 85 (3) , pp. 357-393. 10.1111/manc.12153

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Abstract

We present a stylized model of the over-the-counter markets in the tradition of Duffie Gârleanu and Pedersen (2005) with two distinctive features: (i) buyers have heterogenous preferences and their willingness to pay is private information and (ii) sellers become financially distressed if they cannot sell for too long. A unique steady-state equilibrium exists and it is characterized by predatory buying. Specifically, during periods where sellers are more likely to become distressed (e.g. during economic crises, financial turmoils etc.) buyers become more selective and hold off purchasing despite the abundance of distressed sales and low prices. This reluctance triggers the number of distressed sellers to grow even further and forces them for additional price cuts.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > HB Economic Theory
Publisher:	John Wiley & Sons
ISSN:	1467-9957
Date of First Compliant Deposit:	30 March 2016
Date of Acceptance:	16 February 2016
Last Modified:	03 Dec 2024 19:15
URI:	https://orca.cardiff.ac.uk/id/eprint/87460

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