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We investigate the role of information-based trading in affecting asset returns. We show in a rational expectation example how private information affects equilibrium asset returns. Using a market microstructure model, we derive a measure of the probability of information-based trading, and we estimate this measure using data for individual NYSE-listed(More)
abstract We propose a dynamic econometric microstructure model of trading, and we investigate how the dynamics of trades and trade composition interact with the evolution of market liquidity, market depth, and order flow. We estimate a bivariate generalized autoregressive intensity process for the arrival rates of informed and uninformed trades for 16(More)
In standard auctions with symmetric, independent private value bidders resale creates a role for a speculator—a bidder who is commonly known to have no use value for the good on sale. For second-price and English auctions the efficient value-bidding equilibrium coexists with a continuum of inefficient equilibria in which the speculator wins the auction and(More)
We consider a moral hazard problem where the principal is uncertain what the agent can and cannot do: She knows some actions available to the agent, but other, unknown actions may also exist. The principal demands robustness, evaluating possible contracts by their worst-case performance, over unknown actions the agent might potentially take. The model(More)
Extending an empirical technique developed in Easley, Kiefer, and O'Hara (1996, 1997a), we examine different hypotheses about stock splits. In line with the trading range hypothesis, we find that stock splits attract uninformed traders. However, we also find that informed trading increases, resulting in no appreciable change in the information content of(More)
Association Meetings (Maastricht) and a referee and the editor, Stephen Brown, for helpful comments. We are grateful to Anchada Charoenrook and Jennifer Conrad for providing us with Amihud factor. We thank Morgan Stanley for research support. The authors are solely responsible for the contents of this paper. Abstract We examine the potential profits of(More)
This paper proposes an alternative explanation for the price impact of trades created by information that is carried in the order ßow. Unlike models that consider information asymmetry about the future cash ßows (or liquidation value) of the asset, the approach here postulates uncertainty about the distribution of preferences and endowments of investors.(More)
This paper studies the wealth and pricing implications of loss aversion in the presence of arbitrageurs with Epstein-Zin preferences. Our analysis shows that if loss aversion is the only difference in investors' preferences, then for empirically relevant parameter values, loss-averse investors will be driven out of the market and do not affect long run(More)
During part of the 2007-2009 financial crisis there was little or no trade in a variety of financial assets, even though bids and asks existed for many of these assets. We develop a model in which this illiquidity arises from uncertainty, and we argue that this new form of illiquidity makes bid and ask prices unsuitable as metrics for establishing "fair(More)