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Asset Dissemination Through Dealer Markets

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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.
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hal-01933843 , version 1 (23-01-2019)

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Jean-Edouard Colliard, Gabrielle Demange. Asset Dissemination Through Dealer Markets. 2018. ⟨hal-01933843⟩
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