Information Revelation in Decentralized Markets

AEA 2017 Annual Meeting Paper
EFA 2017 Annual Meeting Paper
WFA 2017 Annual Meeting Paper

47 Pages Posted: 28 Apr 2016 Last revised: 8 Aug 2018

See all articles by Björn Hagströmer

Björn Hagströmer

Stockholm University - Stockholm Business School

Albert J. Menkveld

VU Amsterdam; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)

Date Written: August 1, 2018

Abstract

How does information get revealed in decentralized markets? We test several hypotheses inspired by recent dealer-network theory. To do so we construct an empirical map of information revelation where two dealers are connected based on the synchronicity of their quote changes. The tests, based on EUR/CHF quote data including the 2015 crash, largely support theory: Strongly connected (i.e., central) dealers are more informed. Connections are weaker when there is less to be learned. The crash serves to identify how a network forms when dealers are transitioned from no-learning to learning, i.e., from a fixed to a floating rate.

Keywords: network map, information revelation, information percolation, securities trading, fragmentation

JEL Classification: G10, G14, G15

Suggested Citation

Hagströmer, Björn and Menkveld, Albert J., Information Revelation in Decentralized Markets (August 1, 2018). AEA 2017 Annual Meeting Paper
EFA 2017 Annual Meeting Paper
WFA 2017 Annual Meeting Paper. Available at SSRN: https://ssrn.com/abstract=2770313 or http://dx.doi.org/10.2139/ssrn.2770313

Björn Hagströmer

Stockholm University - Stockholm Business School ( email )

Stockholm
Sweden

Albert J. Menkveld (Contact Author)

VU Amsterdam ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands
+31 20 5986130 (Phone)
+31 20 5986020 (Fax)

Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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