Size Discovery
Author(s)
Duffie, Darrell; Zhu, Haoxiang
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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.
Date issued
2017-01Department
Sloan School of ManagementJournal
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
ISSN
0893-9454
1465-7368