Asset Dissemination Through Dealer Markets
63 Pages Posted: 5 Sep 2018 Last revised: 2 Nov 2019
Date Written: October 30, 2019
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: Suggested Citation