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Asset Dissemination Through Dealer Markets

Author

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  • Colliard, Jean-Edouard

    (HEC Paris - Finance Department)

  • Demange, Gabrielle

    (Paris School of Economics (PSE); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research))

Abstract

Many financial assets are disseminated to final investors via chains of over-the-counter transactions between dealers. We model such an intermediation process as a game with successive take-it-or-leave-it offers: A dealer buys several units of an asset, and can sell some of them to his customers or to a second dealer, who can sell to his customers or to a third dealer, and so on. In equilibrium, the asset is disseminated through a sequence of OTC transactions between dealers. The number of dealers involved, the inventories they keep, and the prices and quantities they offer are endogenously determined. Our model gives a framework to analyze how assets are disseminated through OTC markets, how liquidity evolves along a sequence of transactions, and varies across different sequences of different lengths.

Suggested Citation

  • Colliard, Jean-Edouard & Demange, Gabrielle, 2018. "Asset Dissemination Through Dealer Markets," HEC Research Papers Series 1296, HEC Paris.
    • Handle: RePEc:ebg:heccah:1296
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    References listed on IDEAS

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    Cited by:

    1. de Roure, Calebe & Mönch, Emanuel & Pelizzon, Loriana & Schneider, Michael, 2019. "OTC discount," Discussion Papers 42/2019, Deutsche Bundesbank.
      • de Roure, Calebe & Mönch, Emanuel & Pelizzon, Loriana & Schneider, Michael, 2021. "OTC discount," SAFE Working Paper Series 298, Leibniz Institute for Financial Research SAFE, revised 2021.

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    More about this item

    Keywords

    intermediation chains; liquidity; OTC markets; dealer markets;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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