Decentralized Exchange

Malamud, Semyon; Rostek, Marzena

doi:10.2139/ssrn.3146828

Cited by 20 publications

(34 citation statements)

References 49 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…There is a growing literature studying trading in a network (e.g., Kranton and Minehart (2001), Rahi and Zigrand (2006), Gale and Kariv (2007), Gofman (2014), Condorelli and Galeotti (2017), Choi, Galeotti, and Goyal (2017), Malamud and Rostek (2017), Manea (2018), Nava (2015)). These papers typically consider either the sequential trade of a single unit of the asset or a Cournot-type quantity competition.…”

Section: Related Literaturementioning

confidence: 99%

See 1 more Smart Citation

Trading and Information Diffusion in Over-the-Counter Markets

Babus¹,

Kondor²

2018

Econometrica

170

105

View full text Add to dashboard Cite

We propose a model of trade in over‐the‐counter (OTC) markets in which each dealer with private information can engage in bilateral transactions with other dealers, as determined by her links in a network. Each dealer's strategy is represented as a quantity‐price schedule. We analyze the effect of trade decentralization and adverse selection on information diffusion, expected profits, trading costs, and welfare. Information diffusion through prices is not affected by dealers' strategic trading motives, and there is an informational externality that constrains the informativeness of prices. Trade decentralization can both increase or decrease welfare. A dealer's trading cost is driven by both her own and her counterparties' centrality. Central dealers tend to learn more, trade more at lower costs, and earn higher expected profit.

show abstract

Section: Related Literaturementioning

confidence: 99%

“…2 As an exception, Malamud and Rostek (2017) also used a multi-unit double-auction setup to model a decentralized market. However, they did not consider the problem of learning through trade.…”

Section: Related Literaturementioning

confidence: 99%

Trading and Information Diffusion in Over-the-Counter Markets

Babus¹,

Kondor²

2018

Econometrica

170

105

View full text Add to dashboard Cite

show abstract

“…Their network model predicts that betterconnected dealers are less exposed to adverse selection, as they observe more order flow, and thus charge a smaller adverse-selection-related markup than peripheral dealers. In addition to BK, Gofman (2011) and Malamud and Rostek (2014) study pricing in networks under information frictions. We test predictions from the information-based theory in BK in Section VII.…”

Section: Literature and Hypothesesmentioning

confidence: 99%

Dealer Networks

LI¹,

Schürhoff

2018

The Journal of Finance

200

106

View full text Add to dashboard Cite

Dealers in the over‐the‐counter municipal bond market form trading networks with other dealers to mitigate search frictions. Regulatory data show that this network has a core‐periphery structure with 10 to 30 hubs and over 2,000 peripheral broker‐dealers in which bonds flow from periphery to core and partially back. Central dealers charge investors up to double the round‐trip markups compared to peripheral dealers. In turn, central dealers provide immediacy by matching buyers with sellers more directly and prearranging fewer trades, especially during stress times. Investors thus face a trade‐off between execution cost and speed, consistent with network models of decentralized trade.

show abstract

“…Alternative approaches to endogenous intermediation include the static matching approach (Atkeson, Eisfeldt, and Weill (2015)) and the static network approach (Babus and Kondor (2018); Malamud and Rostek (2017); Gofman (2011);and Farboodi (2014)). I show that some of the key insights of my model, such as the dependence of target asset positions on the level of connectivity and the emergence of speed premium in negotiated prices, are dynamic phenomena and do not arise in static environments.…”

Section: Related Literaturementioning

confidence: 99%

“…Currently, there are two dominant approaches in modeling OTC markets: the dynamic search approach, which my paper belongs to; and the static network approach, with papers such as Malamud and Rostek (2017) and Babus and Kondor (2018). In this section, I will define and solve for an equilibrium in the static network counterpart of my baseline economic environment.…”

Section: Comparison With the Static Network Approach To Otc Marketsmentioning

confidence: 99%

Pricing and Liquidity in Decentralized Asset Markets

Üslü

2019

ECTA

View full text Add to dashboard Cite

I develop a search‐and‐bargaining model of endogenous intermediation in over‐the‐counter markets. Unlike the existing work, my model allows for rich investor heterogeneity in three simultaneous dimensions: preferences, inventories, and meeting rates. By comparing trading‐volume patterns that arise in my model and are observed in practice, I argue that the heterogeneity in meeting rates is the main driver of intermediation patterns. I find that investors with higher meeting rates (i.e., fast investors) are less averse to holding inventories and more attracted to cash earnings, which makes the model corroborate a number of stylized facts that do not emerge from existing models: (i) fast investors provide intermediation by charging a speed premium, and (ii) fast investors hold more extreme inventories. Then, I use the model to study the effect of trading frictions on the supply and price of liquidity. On social welfare, I show that the interaction of meeting rate heterogeneity with optimal inventory management makes the equilibrium inefficient. I provide a financial transaction tax/subsidy scheme that corrects this inefficiency, in which fast investors cross‐subsidize slow investors.

show abstract

Decentralized Exchange

Cited by 20 publications

References 49 publications

Trading and Information Diffusion in Over-the-Counter Markets

Trading and Information Diffusion in Over-the-Counter Markets

Dealer Networks

Pricing and Liquidity in Decentralized Asset Markets

Contact Info

Product

Resources

About