Asset Dissemination Through Dealer Markets

63 Pages Posted: 5 Sep 2018 Last revised: 2 Nov 2019

See all articles by Jean-Edouard Colliard

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)

Multiple version iconThere are 2 versions of this paper

Date Written: October 30, 2019

Abstract

In markets for assets such as corporate bonds or securitizations, large volumes can be split into smaller pieces and gradually sold to several final investors via chains of over-the-counter transactions. We call this phenomenon "dissemination" and model it as a sequential process: A dealer buys several units of an asset, sells some of them to his customers and to a second dealer, who can sell to his customers and to a third dealer, and so on. A larger initial volume to sell is associated both with less liquidity and more dealers involved, while asymmetric information on customer demand leads both to less liquidity and fewer dealers involved. Hence, the model can rationalize both a positive or a negative correlation between the number of dealers disseminating the asset and its liquidity.

Keywords: intermediation chains, liquidity, OTC markets, dealer markets

JEL Classification: C78, D85, G21, G23

Suggested Citation

Colliard, Jean-Edouard and Demange, Gabrielle, Asset Dissemination Through Dealer Markets (October 30, 2019). HEC Paris Research Paper No. FIN-2018-1296. Available at SSRN: https://ssrn.com/abstract=3244321 or http://dx.doi.org/10.2139/ssrn.3244321

Jean-Edouard Colliard (Contact Author)

HEC Paris - Finance Department ( email )

France

Gabrielle Demange

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

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