Financial Intermediation and the Costs of Trading in an Opaque Market

Richard Green, Burton Hollifield and Norman Schürhoff
Authors registered in the RePEc Author Service: Norman Schuerhoff

The Review of Financial Studies, 2007, vol. 20, issue 2, 275-314

Abstract: Municipal bonds trade in opaque, decentralized broker-dealer markets in which price information is costly to gather. We analyze a database of trades between broker-dealers and customers in municipal bonds. These data were only released to the public with a lag; the market was opaque. Dealers earn lower average markups on larger trades, even though dealers bear a higher risk of losses with larger trades. We estimate a bargaining model and compute measures of dealer’s bargaining power. Dealers exercise substantial market power. Our measures of market power decrease in trade size and increase in the complexity of the trade for the dealer.

JEL-codes: G0 G24 (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (70)

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Working Paper: Financial Intermediation and the Costs of Trading in an Opaque Market (2005)
Working Paper: Financial Intermediation and the Costs of Trading in an Opaque Market
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