This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

  1. Home
  2. Journals
  3. American Economic Review
  4. November 2017
  5. Decentralized Exchange

Decentralized Exchange

  • Semyon Malamud
  • Marzena Rostek
American Economic Review
vol. 107, no. 11, November 2017
(pp. 3320-62)
Download Full Text PDF

Abstract

Most assets are traded in multiple interconnected trading venues. This paper develops an equilibrium model of decentralized markets that accommodates general market structures with coexisting exchanges. Decentralized markets can allocate risk among traders with different risk preferences more efficiently, thus realizing gains from trade that cannot be reproduced in centralized markets. Market decentralization always increases price impact. Yet, markets in which assets are traded in multiple exchanges, whether they are disjoint or intermediated, can give higher welfare than the centralized market with the same traders and assets. In decentralized markets, demand substitutability across assets is endogenous and heterogeneous among traders.

Citation

Malamud, Semyon, and Marzena Rostek. 2017. "Decentralized Exchange." American Economic Review, 107 (11): 3320-62. DOI: 10.1257/aer.20140759

Additional Materials

JEL Classification

  • D43 Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
  • D44 Auctions
  • D85 Network Formation and Analysis: Theory
  • G11 Portfolio Choice; Investment Decisions
  • G12 Asset Pricing; Trading Volume; Bond Interest Rates