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The effects of regulating benchmarks

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  • Aquilina, Matteo
  • Pirrone, F. Andrea

Abstract

In financial markets, dealers may take advantage of information asymmetries and extract a rent from buy-side traders. We show that an increase in the precision of a benchmark reduces noise in market prices and increases participation by overcoming traders’ and regulators’ inability to penalize dealers sufficiently.

Suggested Citation

  • Aquilina, Matteo & Pirrone, F. Andrea, 2020. "The effects of regulating benchmarks," Economics Letters, Elsevier, vol. 186(C).
    • Handle: RePEc:eee:ecolet:v:186:y:2020:i:c:s016517651930237x
    DOI: 10.1016/j.econlet.2019.06.018
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    References listed on IDEAS

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    1. Darrell Duffie & Piotr Dworczak & Haoxiang Zhu, 2017. "Benchmarks in Search Markets," Journal of Finance, American Finance Association, vol. 72(5), pages 1983-2044, October.
    2. Joseph A Ritter & Lowell J Taylor, 2011. "Racial Disparity in Unemployment," The Review of Economics and Statistics, MIT Press, vol. 93(1), pages 30-42, February.
    3. Carlson, John A & McAfee, R Preston, 1983. "Discrete Equilibrium Price Dispersion," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 480-493, June.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Cereda, Fábio & Chague, Fernando & De-Losso, Rodrigo & Genaro, Alan & Giovannetti, Bruno, 2022. "Price transparency in OTC equity lending markets: Evidence from a loan fee benchmark," Journal of Financial Economics, Elsevier, vol. 143(1), pages 569-592.
    2. Wang, Xiaodong & Feng, Guimei & Xu, Jiayi & Zhang, Li, 2024. "Information asymmetry and public response: Evidence from the housing market," Economics Letters, Elsevier, vol. 244(C).
    3. Aquilina, Matteo & Ibikunle, Gbenga & Mollica, Vito & Steffen, Tom, 2022. "The visible hand: benchmarks, regulation, and liquidity," Journal of Financial Markets, Elsevier, vol. 61(C).

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    More about this item

    Keywords

    Benchmark; Search; Regulation;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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