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Size Discovery

Darrell Duffie and Haoxiang Zhu

Research Papers from Stanford University, Graduate School of Business

Abstract: Size discovery is the use of trade mechanisms by which large quantities of an asset can be exchanged at a price that does not respond to price pressure. Primary examples of size discovery include "workup" in Treasury markets, "matching sessions" in corporate bond and CDS markets, and block-trading "dark pools" in equity markets. By freezing the execution price and giving up on market-clearing, a size-discovery mechanism overcomes large investors' concerns over price impacts. Price-discovery mechanisms clear the market, but cause investors to internalize their price impacts, inducing costly delays in the reduction of position imbalances. We show how augmenting a price-discovery mechanism with a size-discovery mechanism improves allocative efficiency.

JEL-codes: D47 D82 G14 (search for similar items in EconPapers)
Date: 2016-07
New Economics Papers: this item is included in nep-mst
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