[1] "Trading Relationships in Over-the-Counter Markets"  Revise & Resubmit - Review of Financial Studies

Why do trading relationships impact market liquidity?

Abstract: This paper formalizes a decentralized asset market where investors form long-term trading relationships with dealers. Relationships influence the provision and price of liquidity by alleviating search frictions and mitigating a holdup problem. Intermediation fees depend on both the current gains from trade and the future value of the relationship, creating a temporal dimension that leads to nonmonotonicities in transaction costs as trade sizes or relationship duration vary. When relationship duration is endogenized, investors with the strongest insurance motives establish the longest relationships. This feature of the model links stronger relationships with higher trading volume and tighter spreads.

[2] "Request-for-Quote Protocols" (Job Market Paper)

How does the way investors trade shape transaction costs in over-the-counter markets?

Abstract: This paper formalizes Request-for-Quote (RFQ) trading in over-the-counter markets under a multilateral meeting technology. Upon receiving a request, dealers compete in a first-price auction, balancing larger intermediation fees against a lower probability of execution. This equilibrium features an endogenous distribution of quotes that reflects the degree of dealers' market power. Embedding the pricing mechanism into a dynamic setting shows how dealer participation depends on the intensity of competition and the profitability of quoting. Investors with larger gains from trade attract more dealer participation, which heightens competition and lowers intermediation costs, producing trade-size discounts. The framework also explains the empirically observed hump-shaped pattern of RFQ usage across trade sizes as arising from a trade-off between reductions in pricing and search frictions.