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Distressed Sales in OTC Markets
Author(s) -
Selcuk Cemil
Publication year - 2017
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/manc.12153
Subject(s) - stylized fact , economics , monetary economics , purchasing , private information retrieval , microeconomics , business , macroeconomics , operations management , statistics , mathematics
We present a stylized model of the over‐the‐counter markets in the tradition of Duffie et al . ([Duffie, D., 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.