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Three essays in financial economics

Glebkin, Sergey (2016) Three essays in financial economics. PhD thesis, London School of Economics and Political Science (LSE).

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Abstract

The thesis examines how different aspects of market quality are affected by imperfect competition. The first chapter presents a model of strategic liquidity provision in a uniform-price auction that does not require normally distributed asset payoffs. I propose a constructive solution method: finding the equilibrium reduces to solving a linear ODE. With non-normal payoffs, the price response becomes an asymmetric, non-linear function of order size: greater for buys than sells and concave (convex) for small sell (buy) orders when asset payoffs are positively skewed; concave for large sell (buy) orders when payoffs are bounded below (above). The model speaks to key empirical findings and provides new predictions concerning the shape of price response. The second chapter analyses a market with large and small traders with different values. In such market illiquidity and information efficiency are complements. Policy measures promoting liquidity might be harmful for information efficiency and vice versa. An increase in risk-bearing capacity may harm liquidity. An increase in the precision of information may harm information efficiency. Increasing market power or breaking up a centralized market into two separate exchanges might improve welfare. Multiple equilibria, in which higher liquidity is associated with lower information efficiency, are possible. The third chapter (co-authored with Ji Shen) studies OTC markets. Traders in a market a-la Duffie, Garleanu and Pedersen (2005) can search via Multilateral Trading Platform (MTP), querying n dealers and running first-price auction among them. Dealers have homogenous valuation for the asset, yet the distribution of bid and ask prices is non-degenerate: uncertainty about the number of competitor dealers responded induces mixed-strategy equilibrium. We provide testable implications linking skewness and dispersion of bid and ask prices to dealers response rate in the auctions.

Item Type: Thesis (PhD)
Additional Information: © 2016 Sergey Glebkin
Library of Congress subject classification: H Social Sciences > HG Finance
Sets: Departments > Finance
Supervisor: Vayanos, Dimitri and Chabakauri, Georgy
URI: http://etheses.lse.ac.uk/id/eprint/3344

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