Private and Public Liquidity Provision in Over-the-Counter Markets PDF Download
Are you looking for read ebook online? Search for your book and save it on your Kindle device, PC, phones or tablets. Download Private and Public Liquidity Provision in Over-the-Counter Markets PDF full book. Access full book title Private and Public Liquidity Provision in Over-the-Counter Markets by David M. Arseneau. Download full books in PDF and EPUB format.
Author: David M. Arseneau
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
Get Book Here
Book Description
We show that trade frictions in OTC markets result in inefficient private liquidity provision. We develop a dynamic model of market-based financial intermediation with a two-way interaction between primary credit markets and secondary OTC markets. Private allocations are generically inefficient because investors and firms fail to internalize how their actions affect liquidity in secondary markets. This inefficiency can lead to liquidity that is suboptimally low or high compared to the second best. Our analysis provides a rationale for the regulation and public provision of liquidity and the effect of quantitative easing or tightening on capital markets and investment.
Author: David M. Arseneau
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
Get Book Here
Book Description
We show that trade frictions in OTC markets result in inefficient private liquidity provision. We develop a dynamic model of market-based financial intermediation with a two-way interaction between primary credit markets and secondary OTC markets. Private allocations are generically inefficient because investors and firms fail to internalize how their actions affect liquidity in secondary markets. This inefficiency can lead to liquidity that is suboptimally low or high compared to the second best. Our analysis provides a rationale for the regulation and public provision of liquidity and the effect of quantitative easing or tightening on capital markets and investment.
Author: Ricardo Lagos
Publisher:
ISBN:
Category :
Languages : en
Pages : 45
Get Book Here
Book Description
We study the efficiency of dealers' liquidity provision and the desirability of policy intervention in over-the-counter (OTC) markets during crises. Our theory emphasizes two key frictions in OTC markets: finding counterparties takes time, and trade is bilateral, with quantities and prices determined by bargaining. We model a crisis as a negative shock to investors' asset demands that lasts until a random recovery time. In this context, dealers can provide liquidity to outside investors by acting as counterparties in trades and by accumulating asset inventories. We find that, when frictions are severe, even well capitalized dealers may not find it optimal to accumulate inventories, given that investors choose asset positions that require small reallocations. In such circumstances, the market allocative efficiency can increase if the government steps in, purchases private assets on its own account, and resells them when the economy recovers.
Author: Ricardo A. Lagos
Publisher:
ISBN:
Category : Assets (Accounting)
Languages : en
Pages : 45
Get Book Here
Book Description
We study the efficiency of dealers' liquidity provision and the desirability of policy intervention in over-the-counter (OTC) markets during crises. Our theory emphasizes two key frictions in OTC markets: finding counterparties takes time, and trade is bilateral, with quantities and prices determined by bargaining. We model a crisis as a negative shock to investors' asset demands that lasts until a random recovery time. In this context, dealers can provide liquidity to outside investors by acting as counterparties in trades and by accumulating asset inventories. We find that, when frictions are severe, even well capitalized dealers may not find it optimal to accumulate inventories, given that investors choose asset positions that require small reallocations. In such circumstances, the market allocative efficiency can increase if the government steps in, purchases private assets on its own account, and resells them when the economy recovers.
Author: Bengt Holmstrom
Publisher: MIT Press
ISBN: 0262518538
Category : Business & Economics
Languages : en
Pages : 263
Get Book Here
Book Description
Two leading economists develop a theory explaining the demand for and supply of liquid assets. Why do financial institutions, industrial companies, and households hold low-yielding money balances, Treasury bills, and other liquid assets? When and to what extent can the state and international financial markets make up for a shortage of liquid assets, allowing agents to save and share risk more effectively? These questions are at the center of all financial crises, including the current global one. In Inside and Outside Liquidity, leading economists Bengt Holmström and Jean Tirole offer an original, unified perspective on these questions. In a slight, but important, departure from the standard theory of finance, they show how imperfect pledgeability of corporate income leads to a demand for as well as a shortage of liquidity with interesting implications for the pricing of assets, investment decisions, and liquidity management. The government has an active role to play in improving risk-sharing between consumers with limited commitment power and firms dealing with the high costs of potential liquidity shortages. In this perspective, private risk-sharing is always imperfect and may lead to financial crises that can be alleviated through government interventions.
Author: Thierry Foucault
Publisher: Oxford University Press
ISBN: 0197542069
Category : Capital market
Languages : en
Pages : 531
Get Book Here
Book Description
"The process by which securities are traded is very different from the idealized picture of a frictionless and self-equilibrating market offered by the typical finance textbook. This book offers a more accurate and authoritative take on this process. The book starts from the assumption that not everyone is present at all times simultaneously on the market, and that participants have quite diverse information about the security's fundamentals. As a result, the order flow is a complex mix of information and noise, and a consensus price only emerges gradually over time as the trading process evolves and the participants interpret the actions of other traders. Thus, a security's actual transaction price may deviate from its fundamental value, as it would be assessed by a fully informed set of investors. The book takes these deviations seriously, and explains why and how they emerge in the trading process and are eventually eliminated. The authors draw on a vast body of theoretical insights and empirical findings on security price formation that have come to form a well-defined field within financial economics known as "market microstructure." Focusing on liquidity and price discovery, the book analyzes the tension between the two, pointing out that when price-relevant information reaches the market through trading pressure rather than through a public announcement, liquidity may suffer. It also confronts many striking phenomena in securities markets and uses the analytical tools and empirical methods of market microstructure to understand them. These include issues such as why liquidity changes over time and differs across securities, why large trades move prices up or down, and why these price changes are subsequently reversed, and why we observe temporary deviations from asset fair values"--
Author: Zachary Bethune
Publisher:
ISBN:
Category :
Languages : en
Pages :
Get Book Here
Book Description
We study trading in over-the-counter (OTC) markets where agents have heterogeneous and private valuations for assets. We develop a quantitative model in which assets are issued through a primary market and then traded in a secondary OTC market. Then we use data on the US municipal bond market to calibrate the model. We find that the effects of private information are large, reducing asset supply by 20%, trade volume by 80%, and aggregate welfare by 8%. Using the model, we identify two channels through which the information friction harms the economy. First, the distribution of the existing stock of assets is inefficient because some of the efficient trades, which should occur, do not. Second, the total stock of assets is inefficiently low because resale value and liquidity go down due to the information friction. We investigate how much a simple tax/subsidy scheme that spurs issuance of new assets can help mitigate the cost associated with private information and find that it lowers the welfare cost from 8% to approximately 1%.
Author:
Publisher: World Bank Publications
ISBN:
Category : Banks and banking, International
Languages : en
Pages : 52
Get Book Here
Book Description
"The authors (1) present new indicators of banking sector penetration across 99 countries based on a survey of bank regulatory authorities, (2) show that these indicators predict household and firm use of banking services, (3) explore the association between the outreach indicators and measures of financial, institutional, and infrastructure development across countries, and (4) relate these banking outreach indicators to measures of firms' financing constraints. In particular, they find that greater outreach is correlated with standard measures of financial development, as well as with economic activity. Controlling for these factors, the authors find that better communication and transport infrastructure and better governance are also associated with greater outreach. Government ownership of financial institutions translates into lower access, while more concentrated banking systems are associated with greater outreach. Finally, firms in countries with higher branch and ATM penetration and higher use of loan services report lower financing obstacles, thus linking banking sector outreach to the alleviation of firms' financing constraints. "--World Bank web site.
Author: Daniel S. Hamermesh
Publisher: Elsevier Science Limited
ISBN: 9780444515346
Category : Business & Economics
Languages : en
Pages : 372
Get Book Here
Book Description
These studies are based on information on time use in nine countries. It deals with the "when?" and "with whom?" questions describing human behavior, "what is done?" questions of the quantities and determinants of economic activities as well as children's issues and issues involved in the creation of the American Time Use Survey (ATUS).
Author: Darrell Duffie
Publisher: Princeton University Press
ISBN: 0691138966
Category : Business & Economics
Languages : en
Pages : 115
Get Book Here
Book Description
This book offers a concise introduction to OTC markets by explaining key conceptual issues and modeling techniques, and by providing readers with a foundation for more advanced subjects in this field.
Author: Ben Craig
Publisher:
ISBN:
Category : Banks and banking
Languages : en
Pages : 50
Get Book Here
Book Description
