Search Frictions in Over-the-Counter Foreign Exchange Markets: Theory and Evidence

• 成果类型: Article; Early Access
• 署名作者: Lu, Dong; Puzzello, Daniela; Zhu, Aiyong
• 署名单位: Renmin University of China; Indiana University System; Indiana University Bloomington; Southwestern University of Finance & Economics - China
• 刊物名称: INTERNATIONAL ECONOMIC REVIEW
• ISSN/ISSBN: 0020-6598
• DOI: 10.1111/iere.70011
• 发表日期: 2025
• 关键词: trading costs; asset markets; Bond market; liquidity; microstructure; Nasdaq; IMPACT; MODEL

摘要

This paper integrates theory and transaction-level data from China's interbank over-the-counter (OTC) FX market to examine how search frictions affect prices, asset distributions, and welfare. We document that: (1) larger banks face lower transaction costs, decreasing with trade size; (2) easing search frictions increases dispersion in asset holdings; and (3) search frictions distort counterparty selection. These patterns follow naturally from an OTC model with heterogeneous investor search abilities and dealer fixed costs. We calibrate the model to quantify heterogeneous effects of search frictions across investors and perform counterfactual analysis to assess the impact of policies designed to decrease search frictions.