Publications
Centralizing Over-The-Counter Markets? (with Jason Allen)
Journal of Political Economy, 131 (12), 2023
Selected conferences: NBER IO, AFA, Annual International Industrial Organization Conference, Northern Finance Association, Microstructure Exchange, Columbia Workshop in New Empirical Finance, Bank of England Research Workshop
In traditional over-the-counter markets, investors trade bilaterally through intermediaries. We assess whether and how to shift trades on a centralized platform with trade-level data on the Canadian government bond market. We document that intermediaries charge a markup when trading with investors, and specify a model to quantify price and welfare effects from market centralization. We find that many investors would not use the platform, even if they could, because it is costly, competition for investors is low, and investors value relationships with intermediaries. Market centralization can even decrease welfare, unless competition is sufficiently strong.
Market Power and Capital Constraints (with Jason Allen)
American Economic Review, 116 (4), 2026
Selected conferences: NBER Market Design, SFS Cavalcade, Financial Intermediation Research Society, Meeting of the European Finance Assosication, NYU IO day, European Winter Meeting of the Econometric Society, Boston Conference on Markets and Competition, 9th International Conference on Sovereign Bond Markets, AFA, EARIE, Finance Theory Group Meeting
We explore how traders' equity capitalization influences asset prices in a framework that accounts for market power. In our model traders with capital constraints engage in transactions in an imperfectly competitive market. We demonstrate that looser capital constraints elevate both asset prices and price impact, which diminishes market liquidity. Using Canadian Treasury auction data, we illustrate how to apply our model to quantify these effects. We estimate the shadow costs of capital constraints by exploiting a temporary policy exemption during 2020-2021. Our analysis reveals that while these constraints are only occasionally binding, their relative impact is sizable when activated.
Exchanges for Government Bonds? Evidence During COVID-19 (with Ari Kutai, and Daniel Nathan)
Management Science, 71 (11), 2025
Selected conferences: Annual Meeting of Central Bank Reserach Association, EFA, Darrell Duffie PhD Mentorship and Student Celebration
We leverage the unique institutional feature whereby the Israeli government bond market operates on an exchange rather than over-the-counter to analyze whether and why having an exchange affects market liquidity during a crisis. To achieve this, we conduct difference-in-differences analyses, comparing bid-ask spreads in exchange markets (such as the Israeli government bond market and the U.S. future market) with markets lacking an exchange (like the U.S. government bond market) when COVID was declared a global pandemic. Our findings support the idea that having an exchange enhances market liquidity. A counterfactual analysis using trade data from the Israeli exchange suggests that this is due to the ability of investors to readily provide liquidity to one another and the efficient netting of trade flows on an exchange.
Connecting Disconnected Financial Markets?
American Economic Journal: Microeconomics, 13, 2021, 252-282
In most financial markets, securities are traded in isolation. Such a disconnected market design can be inefficient if agents trade more than one security. I assess the welfare effects of connecting markets by allowing orders for one security to depend on the prices of other securities. I show that everyone trades identical amounts under both market structures if and only if the clearing prices are perfectly correlated or all are price-takers. Prices in disconnected markets might allow strategic traders to extract higher rents from non-strategic traders. In expectation, connected markets generate higher welfare, but all markets become efficient as they grow large.
Interconnected Pay-As-Bid Auctions
Games and Economic Behavior, 121, 2020, 506-530
I develop a framework to study common situations, in which substitute goods are sold in separate, good-specific multi-unit (pay-as-bid) auctions. I characterize bidding behavior and investigate auction design features that could increase revenues. The setting I develop gives rise to an essentially unique symmetric Nash equilibrium in which bidders shade their bids more strongly when goods are close substitutes. To increase revenues, the seller can offer total supply quantities that are (stochastically) unequal in size. This fosters more aggressive bidding and provides a rationale to hold separate, parallel auctions instead of selling all in one auction.
Working Papers
Estimating Demand Systems with Bidding Data (with Jason Allen, and Jakub Kastl)
Selected conferences: AEA, Annual International Industrial Organization Conference, Annual Meeting of the European Econometric Society, European Association for Research in Industrial Economics, MIT Dynamic Structural Econometrics Conference, European Association for Research in Industrial Economics, Money Markets and Central Bank Balance Sheets, CEPR Asset Pricing Meeting Gerzensee, Conference on Asset Demand Systems
We introduce a framework for estimating demand systems across multiple assets using bidding data, such as price-quantity limit orders. Our approach does not require price instruments, which are difficult to obtain, and allows for fully flexible substitution patterns without imposing logit-style restrictions. We establish identification for both price-taking and strategic investors, describe the data requirements for implementation, and illustrate the framework using data from Canadian Treasury bill auctions. We find that dealer demand is elastic and that bills of different maturities act as weak substitutes. We demonstrate how recovering demand allows policymakers to isolate cross-asset spillovers from strategic bid shading.
Entry and Exit in Treasury Auctions (with Jason Allen, Ali Hortaçsu, and Eric Richert)
Winner of the WFA Two Sigma Awards for Best Paper on Investment Management 2024; Selected conferences: NBER Market Design, SITE Market Design, 18th Central Bank Market Microstructure Conference, Meeting of the Society of Advanced Economic Theory, Treasury Market Conference at the University of Chicago, Financial Intermediation Research Society Meeting, Western Finance Association Meeting
Many financial markets are populated by dealers, who commit to regularly participate in the market, and non-dealers who do not commit. This market structure introduces a trade-off between competition and volatility, which we study using data on Canadian Treasury auctions. We document a consistent exit trend by dealers and increasing, but irregular participation by non-dealer hedge funds. Using a structural model, we evaluate the impact of dealer exit on hedge fund participation and its consequences on market competition and volatility. We find that hedge fund entry was partially driven by dealer exit, and that gains thanks to stronger competition associated with hedge fund entry are off-set by losses due to their irregular market participation. We propose an issuance policy that stabilizes hedge fund participation at a sufficiently high average level and achieves sizable revenue gains.
Moral Hazard and Imperfect Competition in Financial Markets
Selected conferences: Chicago Market Design Conference, Finance Theory Group Meeting, Germans Abroad Christmas Meeting, Workshop for Assistant Professors in Finance, Conference on the Industrial Organization of Financial Markets, European Finance Association
When financial intermediaries invest on behalf of clients, they exert effort that clients cannot contract on and compete when trading assets. I develop a model in which the resulting moral hazard and degree of competition interact through market clearing, so that the incentive contracts clients offer intermediaries depend on how many intermediaries compete. I show that greater competition can tighten incentive constraints and reduce welfare. Pricing patterns in proprietary Canadian equity data are consistent with both frictions, and, read through the lens of the model, suggest a welfare loss from greater competition. This calls for coordinating competition and conduct regulation.
Bundling Trades in Over-the-Counter Markets (with Jason Allen)
Selected conferences: NBER Big Data and High-Performance Computing for Financial Economics
In the canonical view of over-the-counter markets, dealers intermediate single-asset trades one at a time. We study a complementary role: when investors trade several assets at once, dealers absorb the joint position into inventory, insuring against execution risk. Using data on the near-universe of Canadian fixed-income trades, we find that bundled transactions account for 20 percent of investor volume. We develop a simple model of why, when, where, and at what prices investors bundle, and use it to explain three patterns. Switches—a purchase paired with a sale—transact at a discount, while uni-directional bundles—all buys or sells—transact at a premium, because a switch’s legs hedge within the dealer’s book while a uni-directional bundle’s compound. Bundling rises with volatility, when insurance against execution risk is most valuable, and the two types sort asymmetrically across bilateral and electronic venues. Together, these patterns reveal a dimension of intermediation the single-asset view overlooks, and one likely to grow in importance.
Specialization in Financial Markets (with Andreas Uthemann)
Selected conferences: NBER Asset Pricing, IO/Finance workshop at Queens University, Women in Market Microstructure Meeting, European Finance Association
Intermediary asset pricing models typically assume integrated markets with homogeneous assets, akin to Walrasian auctions. In practice, however, markets are fragmented and financial products are diverse. Using a unique dataset linking intermediaries’ trades across Canadian stock, bond, and derivative markets, we examine where, what, and at what prices intermediaries trade to assess whether market fragmentation, product diversity, and the resulting specialization are empirically relevant features that asset pricing models should incorporate. We document substantial specialization: intermediaries concentrate their trading activity unevenly across markets and products, with product specialization more pronounced than market specialization. Furthermore, more specialized intermediaries consistently obtain better prices. These findings highlight the need for asset pricing models that account for specialization—especially across products.