Advanced Search
MyIDEAS: Login

On the limits to speculation in centralized versus decentralized market regimes

Contents:

Author Info

  • Zurita, Felipe

Abstract

Speculation creates an adverse selection cost for utility traders, who will choose not to trade if this cost exceeds the benefits of using the asset market. However, if they do not participate, the market collapses, since private information alone is not sufficient to create a motive for trade. Therefore, there is a limit to the amount of speculative transactions that a given market can support. We compare this limit in decentralized versus centralized market regimes, finding that the centralized regime is more prone to speculation than the decentralized one: the transaction fees charged by an intermediary diminish the individual return to information, so that for a fixed value of trading, more speculative transactions can be supported. The analysis also suggests a reason for the existence of intermediaries in financial markets.

(This abstract was borrowed from another version of this item.)

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/B6WJD-4BFXRS8-1/2/76591a4ee86224446cb728c8a9dfcebe
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Intermediation.

Volume (Year): 13 (2004)
Issue (Month): 3 (July)
Pages: 378-408

as in new window
Handle: RePEc:eee:jfinin:v:13:y:2004:i:3:p:378-408

Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/622875

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Jie Zheng, 2008. "Strong Bubbles and Common Expected Bubbles in a Finite Horizon Model," Levine's Working Paper Archive 814577000000000038, David K. Levine.
  2. Drew Fudenberg & David K Levine, 2005. "Learning and Belief Based Trading," Levine's Working Paper Archive 618897000000000975, David K. Levine.
  3. Jie Zheng, 2010. "Strong Bubbles and Common Expected Bubbles in a Finite Horizon Model," Levine's Working Paper Archive 122247000000002153, David K. Levine.
  4. Germain, Laurent, 2005. "Strategic noise in competitive markets for the sale of information," Journal of Financial Intermediation, Elsevier, vol. 14(2), pages 179-209, April.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:jfinin:v:13:y:2004:i:3:p:378-408. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.