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Decentralized Exchange

  • Semyon Malamud

    ()

    (Swiss Finance Institute, EPF Lausanne)

  • Marzena Rostek

    ()

    (Department of Economics, University of Wisconsin-Madison)

We develop a model of decentralized markets in which trading environment is determined by a general network structure. We study how the equilibrium allocation and liquidity depend on the network topology and how an agent’s risk exposure depends on other agents’ exposures. Agents hold several, position specific “local market portfolios,” that also determine the “local market clearing prices”. The impact of one trader on another decays exponentially in the distance in the network, at an explicitly given equilibrium rate. Decentralized trading may increase welfare. Liquidity may be higher for “less connected” networks.

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File URL: http://www.NETinst.org/Rostek_12-18.pdf
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Paper provided by NET Institute in its series Working Papers with number 12-18.

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Length: 48 pages
Date of creation: Sep 2012
Date of revision:
Handle: RePEc:net:wpaper:1218
Contact details of provider: Web page: http://www.NETinst.org/

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  1. Peter Kondor & Ana Babus, 2013. "Trading and Information Diffusion in Over-the-Counter Markets," 2013 Meeting Papers 792, Society for Economic Dynamics.
  2. Darrell DUFFIE & Semyon MALAMUD & Gustavo MANSO, 2010. "Information Percolation in Segmented Markets," Swiss Finance Institute Research Paper Series 10-09, Swiss Finance Institute.
  3. Max Blouin & Roberto Serrano, 1998. "A Decentralized Market with Common Values Uncertainty: Non-Steady States," Working Papers 98-5, Brown University, Department of Economics, revised 10 Aug 1998.
  4. Weill, Pierre-Olivier, 2008. "Liquidity premia in dynamic bargaining markets," Journal of Economic Theory, Elsevier, vol. 140(1), pages 66-96, May.
  5. Ricardo Lagos & Guillaume Rocheteau & Pierre-Olivier Weill, 2009. "Crises and Liquidity in Over-the-Counter Markets," NBER Working Papers 15414, National Bureau of Economic Research, Inc.
  6. Pierre-Olivier Weill & Dimitri Vayanos, 2005. "A Search-Based Theory of the On-the-Run Phenomenon," 2005 Meeting Papers 701, Society for Economic Dynamics.
  7. Darrell Duffie & Semyon Malamud & Gustavo Manso, 2009. "Information Percolation With Equilibrium Search Dynamics," Econometrica, Econometric Society, vol. 77(5), pages 1513-1574, 09.
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