Press Release Announcing the Seventh Ross Prize

Seventh $50,000 Ross Prize Awarded to Finance Scholars Darrell Duffie, Nicolae Gârleanu, and Lasse Pedersen for Research on Over-the-Counter Markets

Durham, NC -- The Foundation for Advancement of Research in Financial Economics (FARFE) has awarded its seventh Stephen A. Ross Prize in Financial Economics to the paper Over-the-Counter Markets, written by Darrell Duffie from Stanford University, Nicolae Gârleanu from the University of California at Berkeley, and Lasse Pedersen from Copenhagen Business School. The paper was published in Econometrica in 2005. The paper and subsequent literature have transformed our understanding of liquidity and price determination in over-the-counter markets in which many financial assets are traded.

The biennial Ross Prize is given to a paper published in the last fifteen years and was first awarded in 2008. FARFE established the prize in honor of the late Steve Ross to recognize and encourage significant contributions to research in financial economics.

Over-the-counter trading is an important and often dominant mode of trading in many markets, including the markets for government, corporate, and municipal bonds, mortgage-backed securities, repos, interest rate swaps, currency forwards, and many other types of derivatives. In contrast to centralized markets, traders in over-the-counter markets must search for counterparties and bargain over the terms of trade.

The award-winning paper captures the effect of these frictions in a search-theoretic model, building on the framework used previously in the context of labor markets and monetary economics. Investors trade assets due to their heterogeneous and stochastic net benefits of holding financial assets. They contact other investors or marketmakers randomly. Once matched with a potential counterparty, traders bargain over the terms of trade. Investors face bid-ask spreads that depend on their outside options, including their ability to trade with other potential counterparties, and thus spreads can vary across investor types. Increased trading speed may or may not reduce spreads.

Given the central role of over-the-counter markets, the liquidity of such markets has been of much concern to policymakers and the focus of many policy interventions, especially in times of crisis, such as during the Global Financial Crisis and the disruptions in financial markets at the onset of the COVID-19 pandemic. The award-winning paper paved the way to improved understanding of the functioning of these markets.

The prize committee was: Leonid Kogan from MIT (chair); Doug Diamond from the University of Chicago; Joao Gomes from the University of Pennsylvania; Hayne Leland from the University of California at Berkeley; Bob Litterman from Kepos Capital; S. Vish Viswanathan from Duke University; and Toni Whited from the University of Michigan.

Founded in 2006, FARFE, a consortium of finance academics and practitioners from around the world, is committed to supporting research in financial economics and to facilitating productive interaction between research and practice in finance. For more details about FARFE, the Ross Prize, and the award-winning paper, see

Contact: Adriano Rampini, FARFE president; (919) 660-7797



FARFE 7th Ross Prize Citation


Past Winners

2018 Prize: To "Risks for the Long Run: A Potential Resolution of Asset Pricing Puzzles" by Ravi Bansal and Amir Yaron.

2016 Prize: To "Mutual Fund Flows and Performance in Rational Markets" by Jonathan Berk and the late Richard Green.

2014 Prize: To "Transform Analysis and Asset Pricing for Affine Jump-Diffusions" by Darrell Duffie, Jun Pan and Kenneth Singleton.

2012 Prize: To “Private and Public Supply of Liquidity,” by Bengt Holmstrom and Jean Tirole.

2010 Prize: To "Credit Cycles," by Nobuhiro Kiyotaki and John Moore.

2008 Prize: To "Corporate Debt Value, Bond Covenants, and Optimal Capital Structure," by Hayne Leland.

The Stephen A. Ross Prize in Financial Economics

The initiative to establish FARFE came from academics and practitioners who were former students of Stephen A. Ross. To encourage research that exemplifies his focus on fundamental research, and to celebrate the influence he has had on financial economics and on the lives of his students, FARFE has established the Stephen A. Ross Prize in Financial Economics. This biennial award honors a paper in financial economics selected from all papers published over the prior 15 years in any finance or economics outlet. The winning paper must either develop or test a theory in financial economics. The inaugural prize was awarded in 2008 to Hayne Leland for his 1994 Journal of Finance paper "Corporate Debt Value, Bond Covenants, and Optimal Capital Structure." About Stephen A. Ross
History of the Stephen A. Ross Prize