The Economics of Over-the-Counter Markets

A Toolkit for the Analysis of Decentralized Exchange

Author: Julien Hugonnier, Benjamin Lester and Pierre-Olivier Weill

The Economics of Over-the-Counter Markets

Hardcover

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19th August 2025

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Hardcover

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Description

An essential primer on an important yet understudied type of financial market

Many of the largest financial markets in the world do not organize trade through an exchange but rather operate within a decentralized or over-the-counter (OTC) structure. Understanding how these markets work has become increasingly important in recent years, as illiquidity in certain OTC markets has appeared as the first signs of trouble-if not the cause itself-of the past two financial crises. However, standard models of financial markets are not suitable for studying the causes of illiquidity in OTC markets, nor the optimal policy response. The Economics of Over-the-Counter Markets proposes a unified search-theoretic framework designed to explicitly capture the key features of OTC markets, confront the growing set of stylized facts from these markets, and provide guidance for policies designed to promote liquidity and resiliency. This incisive book covers empirical regularities that are common across OTC markets, develops the methodological tools to analyze the benchmark theoretical models in the academic literature, and extends these models to confront the latest issues facing these markets.

Covers a broad range of topics, including asset pricing, liquidity, transaction costs, asymmetric information, financial crises, and market design
An ideal textbook for graduate students in economics and finance
An invaluable resource for policymakers seeking a framework to assess the impact of new developments in fixed-income and short-term funding markets

About the Author

Julien Hugonnier is professor of finance at the cole Polytechnique Federale de Lausanne (EPFL) in Switzerland. Benjamin Lester is a senior economic advisor and economist at the Federal Reserve Bank of Philadelphia. Pierre-Olivier Weill is professor of economics at the University of California, Los Angeles.