The Effects of Regulating Benchmarks
Forthcoming, Economic Letters
7 Pages Posted: 27 Jun 2019
Date Written: June 21, 2019
In financial markets, dealers may take advantage of information asymmetries and extract a rent from buy-side traders. We show that an increase in the precision of a benchmark reduces noise in market prices and increases participation by overcoming traders’ and regulators’ inability to penalize dealers sufficiently.
Keywords: Benchmark, Search, Regulation
JEL Classification: G14, G18, D47, D83
Suggested Citation: Suggested Citation