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Decentralized Exchange

descriptionPublicationkeyboard_double_arrow_right Article , Preprint 01 Jan 2012Publisher:American Economic AssociationJournal:American Economic Review, volume 107, pages 3,320-3,362 (issn: 0002-8282,

Authors: Semyon Malamud; Marzena Rostek;

doi: 10.1257/aer.20140759 , 10.2139/ssrn.2164332 , 10.2139/ssrn.3146828

Decentralized Exchange

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Abstract

Most assets are traded in multiple interconnected trading venues. This paper develops an equilibrium model of decentralized markets that accommodates general market structures with coexisting exchanges. Decentralized markets can allocate risk among traders with different risk preferences more efficiently, thus realizing gains from trade that cannot be reproduced in centralized markets. Market decentralization always increases price impact. Yet, markets in which assets are traded in multiple exchanges, whether they are disjoint or intermediated, can give higher welfare than the centralized market with the same traders and assets. In decentralized markets, demand substitutability across assets is endogenous and heterogeneous among traders. (JEL D43, D44, D85, G11, G12)

Related Organizations

University of Wisconsin–Oshkosh
United States
École Polytechnique Fédérale de Lausanne EPFL
Switzerland
Swiss Finance Institute
Switzerland
Swiss Finance Institute
Centre for Economic Policy Research
United Kingdom

Keywords

Asset pricing, Decentralized Market, Trading Network, Over-the-counter, Welfare, jel: jel:D53, jel: jel:G12, jel: jel:G11

Impact byBIP!

	citations This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).	138
	popularity This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.	Top 1%
	influence This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).	Top 10%
	impulse This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.	Top 10%