Nash Lecture: Dark Markets

NASH LECTURE: 4:30 P.M., McConomy Auditorium, University Center, Darrell
Duffie, Dean Witter Distinguished Professor of Finance, The Graduate School
of Business, Stanford University. A reception will follow in the Tepper
Grand Room.

TITLE: Dark Markets

ABSTRACT: Investors do not respond instantly to variation in risk-adjusted
expected returns across financial markets. As a result, asset returns may be
more sensitive in the short run to supply shocks than standard asset-pricing
theories would predict. After initial reactions to supply shocks or changes
in information, expected returns may revert together across markets more
slowly than standard theories would suggest. These lags vary with the
opaqueness of a market, and may reflect the time that it takes to become
aware of an investment opportunity, to find a suitable counterparty, and to
negotiate and execute a trade. This lecture will review evidence of "Dark
Markets" from a growing body of empirical research, citing examples from
insurance markets, bond markets, stock markets, and money markets, and will
suggest some conceptual approaches based on search theory.