Information Revelation in Decentralized Markets

53 Pages Posted: 28 Apr 2016 Last revised: 21 Aug 2019

See all articles by Björn Hagströmer

Björn Hagströmer

Stockholm University - Stockholm Business School

Albert J. Menkveld

VU Amsterdam; Tinbergen Institute

Date Written: January 21, 2019

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, that is, 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 (January 21, 2019). Journal of Finance, Forthcoming, 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 ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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