Dealer Networks
Dealers in over-the-counter securities form networks to mitigate search frictions. The audit trail for municipal bonds shows the dealer network has a core-periphery structure. Central dealers are more efficient at matching buyers and sellers than peripheral dealers, which shortens intermediation chains and speeds up trading. Investors face a tradeoff between execution speed and cost. Central dealers provide immediacy by pre-arranging fewer trades and holding larger inventory. However, trading costs increase strongly with dealer centrality. Investors with strong liquidity need trade with central dealers and at times of market-wide illiquidity. Central dealers thus serve as liquidity providers of last resort.
Year of publication: |
2014-11-10
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Authors: | Li, Dan ; Schurhoff, Norman |
Institutions: | Federal Reserve Board (Board of Governors of the Federal Reserve System) |
Subject: | Municipal bonds | over-the-counter financial market | network analysis | trading cost | liquidity | immediacy | transparency |
Saved in:
freely available
Extent: | application/pdf |
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Series: | |
Type of publication: | Book / Working Paper |
Notes: | The text is part of a series Finance and Economics Discussion Series Number 2014-95 68 pages |
Classification: | G12 - Asset Pricing ; G14 - Information and Market Efficiency; Event Studies ; G24 - Investment Banking; Venture Capital; Brokerage |
Source: |
Persistent link: https://www.econbiz.de/10011095300