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We propose a parsimonious model of over-the-counter trading with asymmetric information to rationalize the existence of intermediation chains that stand between buyers and sellers of assets. Trading an asset through several heterogeneously informed intermediaries can preserve the efficiency of trade by reallocating an information asymmetry over many(More)
Using nearly a trillion dollars of live trading data from a large institutional money manager across 19 developed equity markets over the period 1998 to 2011, we measure the real-world transactions costs and price impact function facing an arbitrageur and apply them to size, value, momentum, and short-term reversal strategies. We find that actual trading(More)
Written for the " Better Living Through Economics " sessions at the American Economics Association meetings, January 4-7, 2008. We thank Peter Orszag and Mark Iwry for their insights on how the " autosave " features of the Pension Protection Act evolved from concept into law. We acknowledge individual and collective financial support from the National(More)
I explore how liquidity provision varies among intermediaries in asset markets. Intermediating high frequency traders (HFTs) in particular appear fundamentally di↵erent from other market makers. Using trader-identified transaction data from the Commodity Futures Trading Commission for gold, silver, and copper futures markets, I shed light on variation in(More)
I examine whether managers strategically disclose negative news for their own benefit. Exploiting the SEC requirement that managers must disclose any material corporate event within five business days, I find they disclose negative events disproportionately on Fridays, before national holidays, and after the market closes-when investors are more(More)
We develop econometric tools for studying jump dependence of two processes from high-frequency observations on a fixed time interval. In this context, only segments of data around a few outlying observations are informative for the inference. We derive an asymptotically valid test for stability of a linear jump relation over regions of the jump size domain.(More)
I use the cross section of bid-ask spreads to develop a new measure of extreme event risk. Equilibrium spreads embed tail risk information because (1) sharp changes in underlying asset values harm liquidity providers and (2) price movements and potential costs are linear in factor loadings. Using this insight, simple regressions relating spreads and trading(More)
No. Regulation often mandates increased transparency to improve how informative prices are about fundamentals. We show that such policy can be counterproductive. We study the optimal decision of an investor who can choose to acquire costly information not only about asset fundamentals but also about the behavior of liquidity traders. We characterize how(More)
The high-frequency trading arms race is a symptom of flawed market design. Instead of the continuous limit order book market design that is currently predominant, we argue that financial exchanges should use frequent batch *First version: July 2013. Project start date: October 2010. For helpful discussions we are grateful to numerous industry practitioners;(More)