Asset Dissemination Through Dealer Markets

62 Pages Posted: 5 Sep 2018 Last revised: 11 Sep 2018

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: July 27, 2018

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

JEL Classification: C78, D85, G21, G23

Suggested Citation

Colliard, Jean-Edouard and Demange, Gabrielle, Asset Dissemination Through Dealer Markets (July 27, 2018). 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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