Size Discovery
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w21696.pdf
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579.31 KB
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Author(s)
Duffie, Darrell
Zhu, Haoxiang
Date Issued
January 2017
Journal
The Review of Financial Studies
Publisher
Oxford University Press (OUP)
Citation
Duffie, Darrell, and Haoxiang Zhu. “Size Discovery.” The Review of Financial Studies 30, no. 4 (January 31, 2017): 1095–1150.
Version
Original manuscript
Abstract
Size-discovery mechanisms allow large quantities of an asset to be exchanged at a price that does not respond to price pressure. Primary examples include "workup" in Treasury markets, "matching sessions" in corporate bond and CDS markets, and block-trading "dark pools" in equity markets. By freezing the execution price and giving up on market clearing, size-discovery mechanisms overcome concerns by large investors over their price impacts. Price-discovery mechanisms clear the market, but cause investors to internalize their price impacts, inducing costly delays in the reduction of position imbalances. We show how augmenting a price-discovery mechanism with a size-discovery mechanism improves allocative efficiency.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.1093/RFS/HHW112
