Piotr Dworczak, a Chicago Research Fellow with the Becker Friedman Institute for Economics (BFI), has been awarded the annual Amundi Smith Breeden First Prize for his research article, “Benchmark in Search Markets.” The article was published in the October 2017 issue of the Journal of Finance.
Many important financial trades are made through more informal over the counter markets rather than exchanges. Especially since the financial crisis there has been considerable interest in obtaining a deeper understanding of how such markets function and how successful they are in supporting efficient trades among interested parties. This article, co-authored with Darrell Duffie of Stanford University’s Graduate School of Business and Haoxiang Zhu of MIT’s Sloan School of Management, provides new insights by showing that reliable benchmarks reduce informational asymmetries between customers and dealers, thereby increasing the volume of socially beneficial trades. The increase in trading volume may offset the reduction in profit margins, giving dealers who can coordinate an incentive to introduce benchmarks. The authors argue that benchmarks deserve strong and well-coordinated support by regulators around the world.
The journals’ associate editors selected the top three papers published in the first five issues of the 2017 and in the December issue of 2016 for the Amundi Smith Breeden Prizes in any area other than corporate finance.