European Business Schools Librarian's Group
HEC Research Papers Series,
HEC Paris
No 1296: Asset Dissemination Through Dealer Markets
Jean-Edouard Colliard () and Gabrielle Demange
Additional contact information
Jean-Edouard Colliard: HEC Paris - Finance Department
Gabrielle Demange: Paris School of Economics (PSE); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
Abstract: Many financial assets are disseminated to final investors via chains of over-the-counter transactions between dealers. We model such an intermediation process as a game with successive take-it-or-leave-it offers: A dealer buys several units of an asset, and can sell some of them to his customers or to a second dealer, who can sell to his customers or to a third dealer, and so on. In equilibrium, the asset is disseminated through a sequence of OTC transactions between dealers. The number of dealers involved, the inventories they keep, and the prices and quantities they offer are endogenously determined. Our model gives a framework to analyze how assets are disseminated through OTC markets, how liquidity evolves along a sequence of transactions, and varies across different sequences of different lengths.
Keywords: intermediation chains; liquidity; OTC markets; dealer markets
62 pages, July 27, 2018
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