Gradual bargaining in decentralized asset markets

Heterogeneity in Decentralized Asset Markets∗

We consider a decentralized market for an asset (or durable good) where investors’ valuations are heterogeneous and drawn from an arbitrary distribution. We provide a full characterization of the equilibrium, in closed form, both in and out of steady state. We find that investors with moderate valuations tend to specialize in intermediation, so that a “core-periphery” trading network emerges en...

Word of Mouth and Gradual Information Diffusion in Asset Markets

We develop a model of gradual information diffusion based on word of mouth communication. When news is initially released to a small fraction of investors, the expected diffusion rate (the change in the fraction of investors with the news) is initially increasing in time and only then decreases. Assuming risk-averse investors trade when they receive the news, the serial correlation of stock ret...

The Effect of Intermediaries’ Market Power in Decentralized Asset Markets

This paper shows that the presence of intermediaries’ market power in decentralized asset markets reduces volumes traded and increases price volatility. I develop a method to estimate the degree of intermediaries’ market power from trading data and I apply it to the US municipal bond market using a new dataset containing all trades executed in this market. I find a high degree of dealer market ...

Bargaining in dynamic markets

Article history: Received 15 June 2015 Available online 21 March 2017 JEL classification: C78 D40

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