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Inter-Dealer Trades in OTC Markets - Who Buys and Who Sells?

Author

Listed:
  • Chung-Yi Tse

    (University of Hong Kong)

  • Yujing Xu

    (University of Hong Kong)

Abstract

In an OTC market where dealers' inventory capacities differ, dealers trade among themselves to rebalance inventories for facilitating the sale and purchase of the asset to and from their investor clients. In a market where the asset is sold quickly, the small-capacity dealers sell to the large-capacity dealers to help them replenish their inventories. Conversely, in a slow market where it takes a relatively long time for the asset to be sold, the small-capacity dealers buy from the large-capacity dealers to help them free up inventory capacities. The prediction, though counterintuitive, is supported by some available empirical evidence. (Copyright: Elsevier)

Suggested Citation

  • Chung-Yi Tse & Yujing Xu, 2021. "Inter-Dealer Trades in OTC Markets - Who Buys and Who Sells?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 39, pages 220-257, January.
  • Handle: RePEc:red:issued:18-336
    DOI: 10.1016/j.red.2020.07.003
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    References listed on IDEAS

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    Cited by:

    1. Julien HUGONNIER & Benjamin LESTER & Pierre-Olivier WEILL, 2014. "Heterogeneity in Decentralized Asset Markets," Swiss Finance Institute Research Paper Series 14-67, Swiss Finance Institute.
    2. Pierre-Olivier Weill, 2020. "The search theory of OTC markets," NBER Working Papers 27354, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    OTC Market; Inter-Dealer Trades; Dealers' Inventories;
    All these keywords.

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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