VGSF - WU Vienna - LC

Christian Opp, Wharton Business School

Campus WU D3.0.225 11:00 - 12:30

Organizer VGSF

As part of the ser­ies of the "Fin­ance Re­search Sem­inar", VGSF wel­comes Chris­tian Opp from the Whar­ton Busi­ness School to present his re­search pa­per.
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Pa­per

Over­-the-­Coun­ter vs. Lim­it-Order Mar­kets: The Role of Traders’ Ex­pert­ise

Vari­ous as­sets are traded in over­-the-­coun­ter (OTC) mar­kets which ex­hibit fric­tions ab­sent in cent­ral­ized lim­it-order mar­kets. We ana­lyze the re­l­at­ive mer­its of these two mar­ket struc­tures in an en­vir­on­ment where traders bring­ing li­quid­ity-driven order flow to the mar­ket use price quotes to screen in­formed coun­ter­parties whose ex­pert­ise is en­do­gen­ous. In this en­vir­on­ment, fric­tions present in OTC mar­kets, such as time­con­sum­ing search, can pro­mote higher ef­fi­ciency for cer­tain as­set classes. In par­tic­u­lar, OTC mar­kets with pre­dict­able and ex­clus­ive trad­ing en­coun­ters en­cour­age ex­pert­ise ac­quis­i­tion, which is be­ne­fi­cial in as­set classes where ex­pert­ise im­proves al­loc­at­ive ef­fi­ciency, but harm­ful when it causes ad­verse se­lec­tion. (JEL D82, G23, L10).



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