A Search-Based Theory of the On-the-Run Phenomenon
We propose a model in which assets with identical cash flows can trade at different prices. Infinitely lived agents can establish long positions in a search spot market, or short positions by first borrowing an asset in a search repo market. We show that short-sellers can endogenously concentrate in...
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| Veröffentlicht in: | The Journal of finance (New York) 2008-06, Vol.63 (3), p.1361-1398 |
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| container_end_page | 1398 |
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| container_issue | 3 |
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| container_title | The Journal of finance (New York) |
| container_volume | 63 |
| creator | VAYANOS, DIMITRI WEILL, PIERRE-OLIVIER |
| description | We propose a model in which assets with identical cash flows can trade at different prices. Infinitely lived agents can establish long positions in a search spot market, or short positions by first borrowing an asset in a search repo market. We show that short-sellers can endogenously concentrate in one asset because of search externalities and the constraint that they must deliver the asset they borrowed. That asset enjoys greater liquidity, a higher lending fee ("specialness"), and trades at a premium consistent with no-arbitrage. We derive closed-form solutions for small frictions, and provide a calibration generating realistic on-the-run premia. |
| doi_str_mv | 10.1111/j.1540-6261.2008.01360.x |
| format | Article |
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| identifier | ISSN: 0022-1082 |
| ispartof | The Journal of finance (New York), 2008-06, Vol.63 (3), p.1361-1398 |
| issn | 0022-1082 1540-6261 |
| language | eng |
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| source | Jstor Complete Legacy; Wiley Online Library All Journals |
| subjects | Asset pricing Bond market Borrowing Calibration Cash flow Discounts Externality Fees Financial engineering Financial theory Lenders Liquidity Liquidity premiums Repurchase agreement Securities trading Studies Supply Trade Transaction costs |
| title | A Search-Based Theory of the On-the-Run Phenomenon |
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