Liquidity risk in sequential trading networks

Shachar Kariv, Maciej H. Kotowski, C. Matthew Leister

Research output: Contribution to journalArticleResearchpeer-review

Abstract

This paper studies a model of intermediated exchange with liquidity-constrained traders. Intermediaries are embedded in a trading network and their financial capacities are private information. We characterize our model's monotone, pure-strategy equilibrium. Agents earn positive intermediation rents in equilibrium. An experimental investigation supports the model's baseline predictions concerning agents’ strategies, price dynamics, and the division of surplus. While private financial constraints inject uncertainty into the trading environment, our experiment suggests they are also a behavioral speed-bump, preventing traders from experiencing excessive losses due to overbidding.

Original languageEnglish
Pages (from-to)565-581
Number of pages17
JournalGames and Economic Behavior
Volume109
DOIs
Publication statusPublished - 1 May 2018

Keywords

  • Auctions
  • Budget constraints
  • Economic networks
  • Experiment
  • Intermediation
  • Liquidity

Cite this

Kariv, Shachar ; Kotowski, Maciej H. ; Leister, C. Matthew. / Liquidity risk in sequential trading networks. In: Games and Economic Behavior. 2018 ; Vol. 109. pp. 565-581.
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Liquidity risk in sequential trading networks. / Kariv, Shachar; Kotowski, Maciej H.; Leister, C. Matthew.

In: Games and Economic Behavior, Vol. 109, 01.05.2018, p. 565-581.

Research output: Contribution to journalArticleResearchpeer-review

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