Endogenous bourse structures
AbstractUsing a club theory approach, this paper provides an equilibrium model in which traders must belong to at least one bourse in order to trade assets. We show, by means of examples, that: 1) traders’ complementarities in preferences and endowments can determine the formation of both large bourses and bourses that are small dark pools of liquidity; 2) bourse formation costs explain the existence of bourses with incomplete markets. For this bourse economy equilibrium is shown to exist generically. We also analyze the welfare implications of considering instead a monopolist bourse that can or cannot exclude and distinguish among traders.
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Bibliographic InfoPaper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we1106.
Date of creation: May 2011
Date of revision:
Bourse structures; Traders' complementarities; Technology; Dark liquidity pools; Demutualization; Efficiency; Inter-bourse arbitrage; Monopolistic bourse; Market incompleteness;
Find related papers by JEL classification:
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
- D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-04-09 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Mas-Colell, Andreu & Nachbar, John H., 1991. "On the finiteness of the number of critical equilibria, with an application to random selections," Journal of Mathematical Economics, Elsevier, vol. 20(4), pages 397-409.
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