Liquidity, Welfare and Transparency in Dynamic OTC markets

We study how public information disclosure about past transaction prices or orders affect price informativeness, market liquidity and welfare in dynamic over the counter markets. Post trade information disclosure reduces market price informativeness, however, it increases liquidity and may improve welfare. Our policy implications include: (i) forward-looking incentive of informed dealers reduces price informativeness but improves liquidity; (ii) post-trade price disclosure may have no impact on price informativeness and liquidity; (iii) however, post-trade order disclosure reduces price informativeness but improves liquidity. We also derive several testable implications and demonstrate the robustness of our findings to different changes in model specification.