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Centralized vs Decentralized Markets: The Role of Connectivity

Alfarno, S., Banal-Estanol, A., Camacho, E. , Iori, G. ORCID: 0000-0001-9443-9353, Kapar, B. & Rahi, R. (2024). Centralized vs Decentralized Markets: The Role of Connectivity. City, University of London.


We consider a setting in which privately informed agents are located in a network and trade a risky asset with other agents with whom they are directly connected. We compare the performance, both theoretically and experimentally, of a complete network (centralized market) to incomplete networks with differing levels of connectivity (decentralized markets). We show that decentralized markets can deliver higher informational efficiency, with prices closer to fundamentals, as well as higher welfare for mean-variance investors.

Publication Type: Monograph (Working Paper)
Additional Information: © The Authors
Publisher Keywords: Experiments, financial markets, diffusion of information, decentralized trading
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Departments: School of Policy & Global Affairs > Economics
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