The economics of over-the-counter markets : a toolkit for the analysis of decentralized exchange / Julien Hugonnier, Benjamin Lester, Pierre-Olivier Weill.

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Hugonnier, Julien

Many of the largest financial markets in the world do not organize trade through an exchange but rather operate within a decentralized or over-the-counter (OTC) structure. Understanding how these markets work has become increasingly important in recent years, as illiquidity in certain OTC markets has appeared as the first signs of trouble - if not the cause itself - of the past two financial crises. However, standard models of financial markets are not suitable for studying the causes of illiquidity in OTC markets, nor the optimal policy response. This book proposes a unified search-theoretic framework designed to explicitly capture the key features of OTC markets, confront the growing set of stylized facts from these markets, and provide guidance for policies designed to promote liquidity and resiliency.

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