DEALER INTERMEDIATION BETWEEN MARKETS

• 成果类型: Article
• 署名作者: Dunne, Peter G.; Hau, Harald; Moore, Michael J.
• 署名单位: European Central Bank; Central Bank of Ireland; University of Geneva; University of Geneva; University of Warwick
• 刊物名称: JOURNAL OF THE EUROPEAN ECONOMIC ASSOCIATION
• ISSN/ISSBN: 1542-4766
• DOI: 10.1111/jeea.12118
• 发表日期: 2015
• 页码: 770-804
• 关键词: limit order book; liquidity; COSTS; MODEL

摘要

We develop a dynamic model of dealer intermediation between a monopolistic customer-dealer market and a competitive interdealer limit order market. Dealers face inventory constraints and adverse selection. We characterize the optimal quote setting and inventory management behavior for both markets in closed form and reveal how price setting in one market segment influences quote behavior in the other. The framework is used to explore market stability issues of the two-tier market structure and delivers testable predictions about how the dispersion of retail prices is related to the state of the interdealer limit order book. Data from the European sovereign bond market is used to test for inventory related retail price dispersion.