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Only Paul Could Go To Changchun

Liquidity Risk in Sequential Trading Networks

2/20/2017

 
Here.

This paper develops a model of intermediated exchange with budget-constrained
traders who are embedded in a trading network. An experimental investigation confirms
the theory’s baseline predictions. Traders adopt monotone strategies with higherbudget
intermediaries offering to pay more for tradable assets. Traders closer to the
final consumer in the network experience systematically greater payoffs due to lessened
strategic uncertainty. While private budget constraints inject uncertainty into the trading
environment, they also serve as a behavioral speed-bump, preventing traders from
experiencing excessive losses due to overbidding.


From:

Kariv, Shachar
University of CA, Berkeley 

Kotowski, Maciej H. 
Harvard University

Leister, C. Matthew 
Monash University



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