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Size Discovery

Darrell Duffie, Haoxiang Zhu

NBER Working Paper No. 21696
Issued in November 2015, Revised in July 2016
NBER Program(s):The Asset Pricing Program

Size-discovery trade 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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Document Object Identifier (DOI): 10.3386/w21696

Published: Darrell Duffie & Haoxiang Zhu, 2017. "Size Discovery," The Review of Financial Studies, vol 30(4), pages 1095-1150. citation courtesy of

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