Liquidity risk in sequential trading networks

Shachar Kariv, Maciej Kotowski and C. Matthew Leister

Scholarly Articles from Harvard Kennedy School of Government

Abstract: This paper studies a model of intermediated exchange with liquidity-constrained traders. Intermediaries are embedded in a trading network and their financial capacities are private information. We characterize our model’s monotone, pure-strategy equilibrium. Agents earn positive intermediation rents in equilibrium. An experimental investigation supports the model’s baseline predictions concerning agents’ strategies, price dynamics, and the division of surplus. While private financial constraints inject uncertainty into the trading environment, our experiment suggests they are also a behavioral speed-bump, preventing traders from experiencing excessive losses due to overbidding.

Date: 2018
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Citations: View citations in EconPapers (2)

Published in Games and Economic Behavior

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http://dash.harvard.edu/bitstream/handle/1/35165081/1406-trade-wp171009.pdf (application/pdf)

Related works:
Journal Article: Liquidity risk in sequential trading networks (2018)
Working Paper: Liquidity Risk in Sequential Trading Networks (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:hrv:hksfac:35165081

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