Decentralized Exchange

Semyon Malamud and Marzena J. Rostek
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Semyon Malamud: Ecole Polytechnique Federale de Lausanne, Centre for Economic Policy Research (CEPR), and Swiss Finance Institute
Marzena J. Rostek: University of Wisconsin

No 18-25, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Most assets are traded in multiple interconnected trading venues. This paper develops an equilibrium model of decentralized markets that accommodates general market structures with coexisting exchanges. Decentralized markets can allocate risk among traders with different risk preferences more efficiently, thus realizing gains from trade that cannot be reproduced in centralized markets. Market decentralization always increases price impact. Yet, markets in which assets are traded in multiple exchanges, whether they are disjoint or intermediated, can give higher welfare than the centralized market with the same traders and assets. In decentralized markets, demand substitutability across assets is endogenous and heterogeneous among traders.

JEL-codes: D43 D44 D85 G11 G12 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2018-03, Revised 2018-04
New Economics Papers: this item is included in nep-des and nep-mst
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1825

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