The search theory of OTC markets
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.
Prepared for the Annual Review of Economics. This paper benefited from comments and suggestions by Stephen Morris (the Editor), David Lindsay, Semih Uslu, Mengbo Zhang, and Diego Zuniga. David Lindsay provided expert research assistance. I would like to thank Batchimeg Sambalaibat for sharing data about trading volume across markets. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.