Investment Horizon and Repo in the Over-the-Counter Market

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

This paper presents a three-period model featuring a short-term investor in the over-the-counter bond market. A short-term investor stores cash because of a need to pay cash at some future date. If a short-term investor buys bonds, then a deadline for retrieving cash lowers the resale price of bonds for the investor through bilateral bargaining in the bond market. Ex-ante, this hold-up problem explains the use of a repo by a short-term investor, the existence of a haircut, and the vulnerability of a repo market to counterparty risk. This result holds without any uncertainty about bond returns or asymmetric information.

Original languageEnglish
Pages (from-to)145-164
Number of pages20
JournalJournal of Money, Credit and Banking
Volume48
Issue number1
DOIs
Publication statusPublished - 2016 Feb 1
Externally publishedYes

Fingerprint

Investment horizon
Investors
Cash
Bond market
Deadline
Counterparty risk
Hold-up problem
Vulnerability
Bond returns
Asymmetric information
Bilateral bargaining
Uncertainty
Resale

Keywords

  • Haircut
  • Over-the-counter market
  • Repo
  • Securities broker-dealer; short-term investor

ASJC Scopus subject areas

  • Finance
  • Accounting
  • Economics and Econometrics

Cite this

Investment Horizon and Repo in the Over-the-Counter Market. / Tomura, Hajime.

In: Journal of Money, Credit and Banking, Vol. 48, No. 1, 01.02.2016, p. 145-164.

Research output: Contribution to journalArticle

@article{e322496ba6ad49dd84fa43d1c32a76f0,
title = "Investment Horizon and Repo in the Over-the-Counter Market",
abstract = "This paper presents a three-period model featuring a short-term investor in the over-the-counter bond market. A short-term investor stores cash because of a need to pay cash at some future date. If a short-term investor buys bonds, then a deadline for retrieving cash lowers the resale price of bonds for the investor through bilateral bargaining in the bond market. Ex-ante, this hold-up problem explains the use of a repo by a short-term investor, the existence of a haircut, and the vulnerability of a repo market to counterparty risk. This result holds without any uncertainty about bond returns or asymmetric information.",
keywords = "Haircut, Over-the-counter market, Repo, Securities broker-dealer; short-term investor",
author = "Hajime Tomura",
year = "2016",
month = "2",
day = "1",
doi = "10.1111/jmcb.12293",
language = "English",
volume = "48",
pages = "145--164",
journal = "Journal of Money, Credit and Banking",
issn = "0022-2879",
publisher = "Wiley-Blackwell",
number = "1",

}

TY - JOUR

T1 - Investment Horizon and Repo in the Over-the-Counter Market

AU - Tomura, Hajime

PY - 2016/2/1

Y1 - 2016/2/1

N2 - This paper presents a three-period model featuring a short-term investor in the over-the-counter bond market. A short-term investor stores cash because of a need to pay cash at some future date. If a short-term investor buys bonds, then a deadline for retrieving cash lowers the resale price of bonds for the investor through bilateral bargaining in the bond market. Ex-ante, this hold-up problem explains the use of a repo by a short-term investor, the existence of a haircut, and the vulnerability of a repo market to counterparty risk. This result holds without any uncertainty about bond returns or asymmetric information.

AB - This paper presents a three-period model featuring a short-term investor in the over-the-counter bond market. A short-term investor stores cash because of a need to pay cash at some future date. If a short-term investor buys bonds, then a deadline for retrieving cash lowers the resale price of bonds for the investor through bilateral bargaining in the bond market. Ex-ante, this hold-up problem explains the use of a repo by a short-term investor, the existence of a haircut, and the vulnerability of a repo market to counterparty risk. This result holds without any uncertainty about bond returns or asymmetric information.

KW - Haircut

KW - Over-the-counter market

KW - Repo

KW - Securities broker-dealer; short-term investor

UR - http://www.scopus.com/inward/record.url?scp=84955515758&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=84955515758&partnerID=8YFLogxK

U2 - 10.1111/jmcb.12293

DO - 10.1111/jmcb.12293

M3 - Article

AN - SCOPUS:84955515758

VL - 48

SP - 145

EP - 164

JO - Journal of Money, Credit and Banking

JF - Journal of Money, Credit and Banking

SN - 0022-2879

IS - 1

ER -