Benchmarks in Search Markets
نویسندگان
چکیده
We characterize the price-transparency role of benchmarks in over-the-counter markets. A benchmark can, under conditions, raise total social surplus by increasing the volume of beneficial trade, facilitating more efficient trade matching between dealers and customers, and reducing total search costs. Although the improvement in market transparency caused by benchmarks lowers dealer profit margins on each trade, dealers may introduce a benchmark in order to encourage greater market participation by investors. Low-cost dealers may introduce a benchmark in order to increase their market share through reducing entry by high-cost dealers, a further source of efficiency gain.
منابع مشابه
Information Exchange and Consumer Search
Many benchmarks in over-the-counter markets, such as LIBOR, are formed based on the submission of banks’ interbank interest rates. Benchmarks are important, as they help consumers to search and provide firms with a basis for price setting. This paper explores firms’ incentives to contribute information about their costs for the purpose of benchmark formation. We show that benchmarks reduce pric...
متن کاملOver-the-Counter Markets with Bargaining Delays: The Role of Public Information in Market Liquidity
In many over-the-counter asset markets, prices are negotiated bilaterally and bargaining over prices takes time. We show that bargaining delays arise when investors have precise private information about the asset quality, but the public information (e.g. credit ratings, benchmarks, past quotes) is coarse. We incorporate this type of bargaining delays into the standard dynamic equilibrium model...
متن کاملApplication of an Improved Neural Network Using Cuckoo Search Algorithm in Short-Term Electricity Price Forecasting under Competitive Power Markets
Accurate and effective electricity price forecasting is critical to market participants in order to make an appropriate risk management in competitive electricity markets. Market participants rely on price forecasts to decide on their bidding strategies, allocate assets and plan facility investments. However, due to its time variant behavior and non-linear and non-stationary nature, electricity...
متن کاملThe Paradox of Commodities: Adding Risk to Reduce Risk
Executive Summary The commodity markets are significantly smaller and more fragmented than other major asset markets such as equities and bonds. Hence, available benchmarks differ greatly in the composition and the calculation methodologies and give varying pictures about volatility and returns over different time periods. Nonetheless, these benchmarks demonstrate a high degree of homogeneity i...
متن کامل