Citation

Discussion Paper Details

Please find the details for DP11591 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Strategic Fragmented Markets

Author(s): Ana Babus and Cecilia Parlatore Siritto

Publication Date: October 2016

Keyword(s): demand schedule equilibrium, interdealer trading and market fragmentation

Programme Area(s): Financial Economics

Abstract: We study the determinants of asset market fragmentation. We develop a model of market formation with strategic investors that have heterogeneous valuations for an asset. Investors choose a dealer with whom to trade considering their price impact and the liquidity provided by the dealer. Fragmented markets are supported in equilibrium when investors? valuations are sufficiently correlated. In this case, liquidity provision is scarce and investors are more willing to accept a higher price impact. Dealers can benefit from fragmentation, but investors are always better off in centralized markets. Market fragmentation contributes to lower trading volumes relative to a centralized market.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11591

Bibliographic Reference

Babus, A and Parlatore Siritto, C. 2016. 'Strategic Fragmented Markets'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11591