Market structure

Résumé

Market structure, in economics, depicts how firms are differentiated and categorised based on the types of goods they sell (homogeneous/heterogeneous) and how their operations are affected by external factors and elements. Market structure makes it easier to understand the characteristics of diverse markets. The main body of the market is composed of suppliers and demanders. Both parties are equal and indispensable. The market structure determines the price formation method of the market. Suppliers and Demanders (sellers and buyers) will aim to find a price that both parties can accept creating a equilibrium quantity. Market definition is an important issue for regulators facing changes in market structure, which needs to be determined. The relationship between buyers and sellers as the main body of the market includes three situations: the relationship between sellers (enterprises and enterprises), the relationship between buyers (enterprises or consumers) and the relationship bet

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https://en.wikipedia.org/wiki/Market_structure

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Essays on the Market Structure and Pricing of Credit Derivatives

Jan Benjamin Junge

This thesis analyzes the interrelation between market structure and price formation in credit derivatives markets. Traditionally, credit derivatives are traded in relatively opaque over-the-counter markets in which trading is segmented and subject to many imperfections from which illiquidity may arise. Recent regulatory reforms have brought transparency to some credit derivatives markets without affecting their segmented structures. The first chapter, which is joint work with Anders B. Trolle, analyzes whether liquidity risk is priced in the cross section of returns on credit default swaps (CDSs). The analysis is based on a factor pricing model and a tradable liquidity factor that is constructed from returns on index arbitrage strategies. The underlying presumption is that violations of simple no-arbitrage relations between different CDS contracts reflect constraints on the risk-bearing capacity of CDS market intermediaries and, in broad terms, CDS market illiquidity. The analysis reveals priced liquidity risk in that credit protection sellers earn higher expected excess returns on CDS contracts with higher liquidity exposures. The liquidity risk premium is significant and accounts for 24% of CDS spreads, on average. CDS risk premia correlate negatively with proxies for the risk-bearing capacity of CDS market intermediaries, which is consistent with intermediary frictions affecting the pricing of CDSs. The second chapter, which is joint work with Pierre Collin-Dufresne and Anders B. Trolle, analyzes transaction costs in the dealer-to-customer (D2C) and dealer-to-dealer (D2D) segments of the post-Dodd-Frank index CDS market. Dodd-Frank regulations that made all-to-all trading possible had the potential to break up the market's segmented structure but failed to do so. This led to a controversy with some market participants arguing that the segmented structure is optimal and other market participants arguing that dealers maintain the segmented structure in order to limit competition by alternative liquidity providers. The analysis reveals that D2C trades indeed have larger transaction costs than D2D trades but that the differences in transaction costs reflect differences in price impacts rather than differences in profits from liquidity provision. D2C trades are even competitive relative to executable bids and offers in the D2D segment, suggesting that the market structure delivers favorable prices for customers who value immediacy. The third chapter documents a decline of transaction costs and profits from liquidity provision in the index CDS market over a two-and-a-half-year period during which Dodd-Frank regulations were implemented. Transaction costs and profits from liquidity provision declined around the introduction of so-called swap execution facilities (SEFs); i.e., regulated trading platforms that offer pre-trade transparent methods of trade execution. Trades that are executed on SEFs have lower transaction costs and are less profitable from a liquidity provider's perspective in comparison to bilaterally negotiated trades, which is consistent with better comparison shopping and stronger price competition on SEFs. Dodd-Frank regulations mandating on-SEF trade execution that were implemented after the introduction of SEFs did not affect transaction costs and profits from liquidity provision, suggesting that there is no incremental effect associated with mandatory pre-trade transparency.

EPFL2016

Chargement

Despite regulatory efforts to promote all-to-all trading, the post-Dodd-Frank index credit default swap market remains two-tiered. Transaction costs are higher for dealer-to-client than interdealer trades, but the difference is explained by the higher, largely permanent, price impact of client trades. Most interdealer trades are liquidity motivated and executed via low-cost, low-immediacy trading protocols. Dealer-to-client trades are nonanonymous; they almost always improve upon contemporaneous executable interdealer quotes, and dealers appear to price discriminate based on the perceived price impact of trades. Our results suggest that the market structure is a consequence of the characteristics of client trades: relatively infrequent, large, and differentially informed.

WILEY2020

Chargement

During the last twenty years we have witnessed the steady rise in academic research and practitioner interest and inquiry on the topic of business models. The topic is still in its infancy, and thus a lot of literature hitherto has focused on the basics: definitions and conceptualizations have dominated in academic literature, providing little support to practitioners who are trying to design, develop, and deploy new business models. Whereas innovative market entrants have grabbed the limelight for academics and business leaders, incumbent firms have had scarce attention, especially large, complex multinationals. There is much to be learned from these businesses in terms of the nature of the components of a business model, the dimensions of analysis, and the relationship between their strategies and business models. The goal of this body of research is to shed light on the mechanics of business model reconfiguration in complex enterprises. As its main research contribution, this dissertation introduces the Business Model Beacon: a new framework with which to characterize business models: defining the complementarity of the strategy and business model, mapping the central and peripheral components of the business model at different dimensions of analysis of the firm. To understand the mechanics of business model reconfiguration, this dissertation presents a case study on the North American unit of consumer products giant Unilever, portrayed through the lens of the Beacon framework.

EPFL2016

Chargement

Essays on the Market Structure and Pricing of Credit Derivatives

Jan Benjamin Junge

EPFL2016