Trading and Information Diffusion in Over-the-Counter Markets

Péter Kondor and Ana Babus

No 792, 2013 Meeting Papers from Society for Economic Dynamics

Abstract: We model trading and information diffusion in OTC markets, when dealers can engage in many bilateral transactions at the same time. We show that information diffusion is effective, but not efficient. While each bilateral price partially reveals all dealers' private information after a single round of trading, dealers could learn more even within the constraints imposed by our environment. This is not a result of dealers' market power, but arises from the interaction between decentralization and differences in dealers' valuation of the asset. We apply our framework to confront several explanations for the disruption of OTC markets with stylized facts from the empirical literature. We find more support for narratives emphasizing increased counterparty risk as opposed to increased informational frictions.

Date: 2013
New Economics Papers: this item is included in nep-cta
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Citations: View citations in EconPapers (25)

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Related works:
Journal Article: Trading and Information Diffusion in Over‐the‐Counter Markets (2018)
Working Paper: Trading and information diffusion in over-the-counter markets (2018)
Working Paper: Trading and Information Diffusion in Over-the-Counter Markets (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed013:792

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