FRIC/Finance Seminar with Batchimeg Sambalaibat, University of Oklahoma, Price College of Business

FRIC Center for Financial Frictions and the Department of Finance are proud to announce the upcoming seminar with Batchimeg Sambalaibat, University of Oklahoma, Price College of Business.

Batchimeg Sambalaibat will present

Endogenous Specialization and Dealer Networks

Authors:
Artem Neklyudov, University of Lausanne
Batchimeg Sambalaibat, Price College of Business, University of Oklahoma

ABSTRACT
OTC markets exhibit a core-periphery network: 10-30 central dealers trade a lot and with many dealers, while hundreds of peripheral dealers trade sparsely and with few dealers. Existing work explain this phenomenon with exogenous dealer heterogeneity. We build a search-based model of network formation and propose that a core-periphery network arises from specialization. Dealers endogenously specialize in different clients with different liquidity needs. The clientele difference across dealers, in turn, generates dealer heterogeneity and the core-periphery network: The dealers specializing in clients with frequent trading needs form the core, while dealers specializing in buy-and-hold investors form the periphery.