Trading with Expert Dealers

33 Pages Posted: 29 Jul 2022 Last revised: 27 Nov 2023

See all articles by Maria Chaderina

Maria Chaderina

University of Oregon - Lundquist College of Business

Vincent Glode

University of Pennsylvania - The Wharton School

Date Written: November 16, 2023

Abstract

We model investors' allocation of order flow among over-the-counter dealers jointly with dealers' acquisition of expertise useful to take advantage of investors across transactions. Investors choose dealers based on their level of expertise and the liquidity they are expected to provide whereas dealers choose their level of expertise based on the number of transactions they expect to intermediate and the cost of acquiring expertise. Our model rationalizes why the most sought-after dealers often are those with the best data, technology, and skills, despite the significant adverse selection concerns triggered by their expertise.

Keywords: OTC networks, financial intermediation, dealers, trading skills.

JEL Classification: G20, G14, D82, D43, L13

Suggested Citation

Chaderina, Maria and Glode, Vincent, Trading with Expert Dealers (November 16, 2023). Available at SSRN: https://ssrn.com/abstract=4172172 or http://dx.doi.org/10.2139/ssrn.4172172

Maria Chaderina (Contact Author)

University of Oregon - Lundquist College of Business ( email )

Lundquist College of Business
1208 University of Oregon
Eugene, OR 97403
United States

Vincent Glode

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

HOME PAGE: http://www.vincentglode.com

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