The Journal of Finance

Decentralized Exchange: The Uniswap Automated Market Maker

Published: 12/20/2024,  Volume: 80,  Issue: 1  |  DOI: 10.1111/jofi.13405  |  Cited by: 107

ALFRED LEHAR, CHRISTINE PARLOUR

Uniswap is a system of smart contracts on the Ethereum blockchain and is the largest decentralized exchange with a liquidity balance worth up to 4 billion USD and daily trading volume of up to 7 billion USD. It is a new model of liquidity provision, so‐called automated market making. For this new market form, we characterize equilibrium in the liquidity pools. We collect all 95.8 million Uniswap interactions and compare this automated market maker (AMM) to a centralized limit order book. We document absence of long‐lived arbitrage opportunities, and show conditions under which the AMM dominates a limit order market.

Loan Sales and Relationship Banking

Published: 5/9/2008,  Volume: 63,  Issue: 3  |  DOI: 10.1111/j.1540-6261.2008.01358.x  |  Cited by: 274

CHRISTINE A. PARLOUR, GUILLAUME PLANTIN

Firms raise money from banks and the bond market. Banks sell loans in a secondary market to recycle their funds or to trade on private information. Liquidity in the loan market depends on the relative likelihood of each motive for trade and affects firms' optimal financial structure. The endogenous degree of liquidity is not always socially optimal: There is excessive trade in highly rated names, and insufficient liquidity in riskier bonds. We provide testable implications for prices and quantities in primary and secondary loan markets, and bond markets. Further, we posit that risk‐based capital requirements may be socially desirable.

Payment System Externalities

Published: 2/21/2022,  Volume: 77,  Issue: 2  |  DOI: 10.1111/jofi.13110  |  Cited by: 32

CHRISTINE A. PARLOUR, UDAY RAJAN, JOHAN WALDEN

We examine how the payment processing role of banks affects their lending activity. In our model, banks operate in separate zones, and issue claims to entrepreneurs who purchase some inputs outside their own zone. Settling bank claims across zones incurs a cost. In equilibrium, a liquidity externality arises when zones are sufficiently different in their outsourcing propensities—a bank may restrict its own lending because it needs to hold liquidity against claims issued by another bank. Our work highlights that the disparate motives for interbank borrowing (investing in productive projects and managing liquidity) can have different effects on efficiency.

Financial Flexibility, Bank Capital Flows, and Asset Prices

Published: 9/12/2012,  Volume: 67,  Issue: 5  |  DOI: 10.1111/j.1540-6261.2012.01770.x  |  Cited by: 19

CHRISTINE A. PARLOUR, RICHARD STANTON, JOHAN WALDEN

In our parsimonious general‐equilibrium model of banking and asset pricing, intermediaries have the expertise to monitor and reallocate capital. We study financial development, intraeconomy capital flows, the size of the banking sector, the value of intermediation, expected market returns, and the risk of bank crashes. Asset pricing implications include: a market's dividend yield is related to its financial flexibility, and capital flows should be important in explaining expected returns and the risk of bank crashes. Our predictions are broadly consistent with the aggregate behavior of U.S. capital markets since 1950.

Equilibrium in a Dynamic Limit Order Market

Published: 9/16/2005,  Volume: 60,  Issue: 5  |  DOI: 10.1111/j.1540-6261.2005.00795.x  |  Cited by: 319

RONALD L. GOETTLER, CHRISTINE A. PARLOUR, UDAY RAJAN

We model a dynamic limit order market as a stochastic sequential game with rational traders. Since the model is analytically intractable, we provide an algorithm based on Pakes and McGuire (2001) to find a stationary Markov‐perfect equilibrium. We then generate artificial time series and perform comparative dynamics. Conditional on a transaction, the midpoint of the quoted prices is not a good proxy for the true value. Further, transaction costs paid by market order submitters are negative on average, and negatively correlated with the effective spread. Reducing the tick size is not Pareto improving but increases total investor surplus.

Personal Communication in an Automated World: Evidence from Loan Repayments

Published: 11/28/2024,  Volume: 80,  Issue: 1  |  DOI: 10.1111/jofi.13388  |  Cited by: 7

CHRISTINE LAUDENBACH, STEPHAN SIEGEL

We examine the effect of personal, two‐way communication on the payment behavior of delinquent borrowers. Borrowers who speak with a randomly assigned bank agent are significantly more likely to successfully resolve the delinquency relative to borrowers who do not speak with a bank agent. Call characteristics related to the human touch of the call, such as the likeability of the agent's voice, significantly affect payment behavior. Borrowers who speak with a bank agent are also significantly less likely to become delinquent again. Our findings highlight the value of a human element in interactions between financial institutions and their customers.

The Long‐Lasting Effects of Experiencing Communism on Attitudes toward Financial Markets

Published: 12/25/2025,  Volume: 81,  Issue: 2  |  DOI: 10.1111/jofi.70006  |  Cited by: 5

CHRISTINE LAUDENBACH, ULRIKE MALMENDIER, ALEXANDRA NIESSEN‐RUENZI

We show that exposure to anti‐capitalist ideology can exert a lasting influence on attitudes toward capital markets and stock market participation. Using novel survey, bank, and broker data, we document that, decades after Germany's reunification, East Germans invest significantly less in stocks and hold more negative views on capital markets. Effects vary by personal experience under communism. Results are strongest for individuals who remember life in the German Democratic Republic positively, for example, those living in a “showcase city.” Results reverse for those with negative experiences like environmental pollution or lack of Western TV entertainment.

International Evidence on Institutional Trading Behavior and Price Impact

Published: 3/25/2004,  Volume: 59,  Issue: 2  |  DOI: 10.1111/j.1540-6261.2004.00651.x  |  Cited by: 227

Chiraphol N. Chiyachantana, Pankaj K. Jain, Christine Jiang, Robert A. Wood

This study characterizes institutional trading in international stocks from 37 countries during 1997 to 1998 and 2001. We find that the underlying market condition is a major determinant of the price impact and, more importantly, of the asymmetry between price impacts of institutional buy and sell orders. In bullish markets, institutional purchases have a bigger price impact than sells; however, in the bearish markets, sells have a higher price impact. This differs from previous findings on price impact asymmetry. Our study further suggests that price impact varies depending on order characteristics, firm‐specific factors, and cross‐country differences.