Inventory, market making, and liquidity in OTC markets

• 成果类型: Article
• 署名作者: Cohen, Assa; Kargar, Mahyar; Lester, Benjamin; Weill, Pierre-Olivier
• 署名单位: Yeshiva University; University of Illinois System; University of Illinois Urbana-Champaign; Federal Reserve System - USA; Federal Reserve Bank - Philadelphia; National Bureau of Economic Research; University of California System; University of California Los Angeles; Center for Economic & Policy Research (CEPR)
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2024.105917
• 发表日期: 2024
• 关键词: Over-the-counter markets; intermediation; liquidity; Dealer inventory; Financial regulation

摘要

We develop a search-theoretic model of a dealer-intermediated over-the-counter market. Our key departure from the literature is to assume that, when a customer meets a dealer, the dealer can sell only assets that it already owns. Hence, in equilibrium, dealers choose to hold inventory. . We derive the equilibrium relationship between dealers' costs of holding assets on their balance sheets, their optimal inventory holdings, and various measures of liquidity, including bid-ask spreads, trade size, volume, and turnover. Using transaction-level data from the corporate bond market, we calibrate the model to quantitatively assess the impact of post-crisis regulations on dealers' inventory costs, liquidity, and welfare.