What is the impact of introducing a parallel OTC market? Theory and evidence from the chinese interbank FX market

• 成果类型: Article
• 署名作者: Holden, Craig W.; Lu, Dong; Lugovskyy, Volodymyr; Puzzello, Daniela
• 署名单位: Indiana University System; IU Kelley School of Business; Indiana University Bloomington; Renmin University of China; Renmin University of China; Indiana University System; Indiana University Bloomington
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2020.10.004
• 发表日期: 2021
• 页码: 270-291
• 关键词: Market structure; Over-the-counter; limit-order book; FX market

摘要

Chinese interbank foreign exchange trading was originally conducted through a centralized, anonymous limit order book (LOB). We determine the impact of the introduction of a parallel decentralized over-the-counter (OTC) market. We find that: (1) most trading migrated to the OTC, (2) the LOB price function is upward-sloping versus the OTC price function is downward-sloping, and (3) the LOB market has a single price function versus the OTC market has multiple price functions. Next, we develop a theoretical model of parallel markets that can simultaneously explain all of these empirical findings. We test a new model prediction and find support. (C) 2020 Elsevier B.V. All rights reserved.