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Completing Markets With Contracts: Evidence From the First Central Clearing Counterparty

Abstract : I study a contracting innovation that suddenly insulated traders of hedging contracts against counterparty risk: central clearing counterparties (CCPs) for derivatives. The first CCP was created in Le Havre (France) in 1882, in the coffee futures market. Using triple difference-in-differences estimation, I show that central clearing changed the geography of trade flows Europe-wide, to the benefit of Le Havre. Inspecting the mechanism using trader-level data, I find that the CCP solved both a "missing market" problem and adverse selection issues. Central clearing also facilitated entry of new traders in the market. The successful contracting innovation quickly spread to other exchanges.
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Preprints, Working Papers, ...
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https://hal-hec.archives-ouvertes.fr/hal-02895947
Contributor : Antoine Haldemann <>
Submitted on : Friday, July 10, 2020 - 11:26:51 AM
Last modification on : Saturday, July 11, 2020 - 3:51:12 AM

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Guillaume Vuillemey. Completing Markets With Contracts: Evidence From the First Central Clearing Counterparty. 2019. ⟨hal-02895947⟩

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