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Competing for Order Flow in OTC Markets

Author

Listed:
  • Benjamin Lester
  • Guillaume Rocheteau

    (LEMMA - Laboratoire d'économie mathématique et de microéconomie appliquée - UP2 - Université Panthéon-Assas)

  • Pierre-Olivier Weill

    (UCLA - University of California [Los Angeles] - UC - University of California, NBER - The National Bureau of Economic Research)

Abstract

We develop a model of a two‐sided asset market in which trades are intermediated by dealers and are bilateral. Dealers compete to attract order flow by posting the terms at which they execute trades—which can include prices, quantities, and execution speed—and investors direct their orders toward dealers who offer the most attractive terms. We characterize the equilibrium in a general setting, and we illustrate theoretically and numerically how the model can account for several important trading patterns in over‐the‐counter markets, which do not emerge from existing models.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Benjamin Lester & Guillaume Rocheteau & Pierre-Olivier Weill, 2015. "Competing for Order Flow in OTC Markets," Post-Print hal-04149211, HAL.
    • Handle: RePEc:hal:journl:hal-04149211
    DOI: 10.1111/jmcb.12215
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    More about this item

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G1 - Financial Economics - - General Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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