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Size Discovery
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DOI：10.1093/rfs/hhw112.png)
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Abstract
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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.
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MARKETS
COMPETITION
INFORMATION
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