Intermediaries as Information Aggregators
Laura Veldkamp,
David Lucca and
Nina Boyarchenko
No 236, 2015 Meeting Papers from Society for Economic Dynamics
Abstract:
In most theories of financial intermediation, the intermediaries diversify risk, transform maturity or liquidity, or screen/monitor borrowers. But in U.S. Treasury auctions, none of these rationales apply: Investors can bid directly, assets are highly liquid, dealers do not discipline, screen or diversify fiscal policy risk. Yet, most bids are still intermediated. Motivated by treasury auctions, we explore a new information aggregation theory of intermediaries who observe the order-flow of each client and use that aggregated information to advise all clients. In contrast to underwriting theories where intermediaries extract rents, but reduce revenue variance, information aggregators do the opposite: They increase expected auction revenue, but also make the revenue more sensitive to changes in asset value. We use the model to examine current policy questions, such as the optimal number of intermediaries, the effect of non-intermediated bids and minimum bidding requirements.
Date: 2015
New Economics Papers: this item is included in nep-ban
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)
Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2015/paper_236.pdf (application/pdf)
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:red:sed015:236
Access Statistics for this paper
More papers in 2015 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().