Size Discovery

Darrell Duffie and Haoxiang Zhu

No 21696, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Size-discovery trade mechanisms allow large quantities of an asset to be exchanged at a price that does not respond to price pressure. Primary examples 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, size-discovery mechanisms overcome concerns by large investors over their 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: 2015-11
New Economics Papers: this item is included in nep-mst
Note: AP
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Citations: View citations in EconPapers (1)

Published as Darrell Duffie & Haoxiang Zhu, 2017. "Size Discovery," The Review of Financial Studies, vol 30(4), pages 1095-1150.

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