Liquidity Risk in Sequential Trading Networks

Shachar Kariv, Maciej Kotowski and Christian Leister
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Shachar Kariv: University of CA, Berkeley

Working Paper Series from Harvard University, John F. Kennedy School of Government

Abstract: This paper develops a model of intermediated exchange with budget-constrained traders who are embedded in a trading network. An experimental investigation confirms the theory's baseline predictions. Traders adopt monotone strategies with higher-budget intermediaries offering to pay more for tradable assets. Traders closer to the final consumer in the network experience systematically greater payoffs due to lessened strategic uncertainty. While private budget constraints inject uncertainty into the trading environment, they also serve as a behavioral speed-bump, preventing traders from experiencing excessive losses due to overbidding.

JEL-codes: C91 D44 D85 G10 L14 (search for similar items in EconPapers)
Date: 2016-10
New Economics Papers: this item is included in nep-net
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Citations: View citations in EconPapers (4)

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https://research.hks.harvard.edu/publications/getFile.aspx?Id=1434

Related works:
Journal Article: Liquidity risk in sequential trading networks (2018)
Working Paper: Liquidity risk in sequential trading networks (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:harjfk:16-039

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