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Endogenous bourse structures

  • Luque, Jaime
  • Faias, Marta

We propose a novel approach to the market microstructure theory, where a bourse is a club that facilitates asset trading among its members. Under the new perspective of club theory, we provide an equilibrium setting where traders must belong to at least one bourse to trade assets. For this bourse economy, we show that equilibrium exists generically, and give positive predictions regarding the formation of a large unique bourse, and/or a bourse with complete markets. We also give examples that illustrate how traders’ attributes and bourse formation costs explain bourse size and composition, market incompleteness, and multiple memberships.

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Paper provided by Universidad Carlos III de Madrid. Departamento de Economía in its series UC3M Working papers. Economics with number we1106.

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Date of creation: Apr 2012
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Handle: RePEc:cte:werepe:we1106
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  1. 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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