Curriculum Vitae

Abstract: Fair value accounting forces institutions to revalue their inventory whenever a new transaction price is observed. An institution facing a balance sheet constraint can have incentives to suspend trading in opaque over-the-counter markets to obstruct further price discovery. This way the asset's book valuation can be kept artificially high, thereby relaxing the institution's balance sheet constraint. But, the institution looses direct control of its asset holdings, leading to possible excessive risk exposure. An institution optimally balances this tradeoff when choosing the point beyond which it suspends trading. Outside investors, who do not know at what price the asset would trade, reduce their valuation the longer the asset has not traded. Their expected discount from book value is convex in time since last trade and robust to parameter misspecifications.

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