Trading and Information Diffusion in Over-the-Counter Markets
AbstractWe model trading and information diffusion in OTC markets, when dealers can engage in many bilateral transactions at the same time. We show that information diffusion is effective, but not efficient. While each bilateral price partially reveals all dealers' private information after a single round of trading, dealers could learn more even within the constraints imposed by our environment. This is not a result of dealers' market power, but arises from the interaction between decentralization and differences in dealers' valuation of the asset. We apply our framework to confront several explanations for the disruption of OTC markets with stylized facts from the empirical literature. We find more support for narratives emphasizing increased counterparty risk as opposed to increased informational frictions.
Download InfoIf 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.
Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 792.
Date of creation: 2013
Date of revision:
Contact details of provider:
Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Web page: http://www.EconomicDynamics.org/society.htm
More information through EDIRC
Other versions of this item:
- Ana Babus & Péter Kondor, 2012. "Trading and Information Diffusion in Over-the-Counter Markets," CEU Working Papers 2012_19, Department of Economics, Central European University, revised 09 Dec 2012.
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.:
- Pierre-Olivier Weill & Guillaume Rocheteau & Ricardo Lagos, 2007.
"Crashes and Recoveries in Illiquid Markets,"
2007 Meeting Papers
981, Society for Economic Dynamics.
- Ricardo Lagos & Guillaume Rocheteau & Pierre-Olivier Weill, 2007. "Crashes and recoveries in illiquid markets," Working Paper 0708, Federal Reserve Bank of Cleveland.
- Ricardo Lagos & Guillaume Rocheteau & Pierre-Olivier Weill, 2008. "Crashes and Recoveries in Illiquid Markets," NBER Working Papers 14119, National Bureau of Economic Research, Inc.
- Vives, Xavier, 2008.
"Strategic supply function competition with private information,"
IESE Research Papers
D/774, IESE Business School.
- Xavier Vives, 2011. "Strategic Supply Function Competition With Private Information," Econometrica, Econometric Society, vol. 79(6), pages 1919-1966, November.
- Xavier Vives, 2008. "Strategic Supply Function Competition with Private Information," CESifo Working Paper Series 2410, CESifo Group Munich.
- Xavier Vives, 2009. "Strategic Supply Function Competition with Private Information," CESifo Working Paper Series 2856, CESifo Group Munich.
- Xavier Vives, 2009. "Strategic Supply Function Competition with Private Information," Cowles Foundation Discussion Papers 1736, Cowles Foundation for Research in Economics, Yale University.
- Vives, Xavier, 2008. "Strategic Supply Function Competition with Private Information," CEPR Discussion Papers 6960, C.E.P.R. Discussion Papers.
- Kyle, Albert S, 1989. "Informed Speculation with Imperfect Competition," Review of Economic Studies, Wiley Blackwell, vol. 56(3), pages 317-55, July.
- Agarwal, Sumit & Chang, Yan & Yavas, Abdullah, 2012. "Adverse selection in mortgage securitization," Journal of Financial Economics, Elsevier, vol. 105(3), pages 640-660.
- Biais, Bruno & Hombert, Johan & Weill, Pierre-Olivier, 2013.
"Equilibrium Pricing and Trading Volume under Preference Uncertainty,"
TSE Working Papers
13-422, Toulouse School of Economics (TSE).
- Biais, Bruno & Hombert, Johan & Weill, Pierre-Olivier, 2013. "Equilibrium Pricing and Trading Volume under Preference Uncertainty," IDEI Working Papers 787, Institut d'Économie Industrielle (IDEI), Toulouse, revised Dec 2013.
- Andrew G. Atkeson & Andrea L. Eisfeldt & Pierre-Olivier Weill, 2013.
"The Market for OTC Derivatives,"
NBER Working Papers
18912, National Bureau of Economic Research, Inc.
- Atkeson, Andrew & Eisfeldt, Andrea L. & Weill, Pierre-Olivier, 2013. "The Market for OTC Derivatives," CEPR Discussion Papers 9403, C.E.P.R. Discussion Papers.
- Andrew Atkeson & Andrea L. Eisfeldt & Pierre-Olivier Weill, 2013. "The market for OTC derivatives," Staff Report 479, Federal Reserve Bank of Minneapolis.
- Marc de Kamps & Daniel Ladley & Aistis Simaitis, 2012. "Heterogeneous Beliefs in Over-The-Counter Markets," Discussion Papers in Economics 13/03, Department of Economics, University of Leicester, revised Sep 2013.
- Semyon Malamud & Marzena Rostek, 2012. "Decentralized Exchange," Working Papers 12-18, NET Institute.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann).
If references are entirely missing, you can add them using this form.