We develop a new methodology to estimate the impact of financial transaction tax (FTT) on market outcomes. In our sequential trading model, there are price-elastic noise and informed traders. model through maximum likelihood for sample 60 NYSE stocks in 2017. quantify effect introducing an FTT given parameter estimates. An increases proportion trading, improves information aggregation, but lowe...

A unlt-hnked hfe insurance contract ~s a contract where the insurance benefits depend on the price of some specific traded stocks We consider a model describing the uncertainty of the financial market and a portfoho of insured individuals simultaneously. Due to incompleteness the insurance claims cannot be hedged completely by trading stocks and bonds only, leawng some risk to the insurer. The ...

We discuss optimal trading strategies for general utility functions in portfolios of cash and stocks subject to small proportional transaction costs. We present a new interpretation of scalings found by Soner, Shreve, and others. To leading order in the small transaction cost parameter, the free boundary problem for the expected utility’s value function is shown to be dual, in the sense of Lagr...

What determines success on Wall Street? This study examined if genes affecting dopamine levels of professional traders were associated with their career tenure. Sixty professional Wall Street traders were genotyped and compared to a control group who did not trade stocks. We found that distinct alleles of the dopamine receptor 4 promoter (DRD4P) and catecholamine-O-methyltransferase (COMT) that...

Using high-frequency data and a carefully constructed 1-1 matched sample of control (non decimal) stocks, we isolate the effects of decimalization for a sample of NYSE-listed common stocks trading in decimals. We find that both quoted and effective bid-ask spreads and depths have declined significantly following decimalization. Both trades and trading volume have declined significantly in all t...

We test the hypothesis that status preference amplifies trading activity in stock markets. This preference leads to demand for local stocks to track neighbors that rises with the stock market and generates trading between status and non-status seekers. We use an empirical design from China, where we measure intensity of status concerns by province based on income and luxury brand internet searc...

We study the lead±lag relationships among the spot, futures, and options markets on Hong KongÕs Hang Seng Index (HSI). The young options market experiences thin trading, and the option returns lag the cash index returns. The more mature futures market experiences active trading. Yet its lead over the cash index appears to be less than the counterparts in other countries. A possible reason is th...

This paper hypothesizes that more active informed trading and intense information production help investors detect the low persistence of accruals, and consequently reduce the magnitude of accruals mis-pricing. Applying both the Mishkin (1983) and the hedge-portfolio tests to subsamples sorted on the basis of a two-way classification – accruals and one of the information production measures, we...

This study investigates the trading activity in options and stock markets around informed events with extreme daily stock price movements. We find that informed agents are more likely to trade options prior to negative news and stocks ahead of positive news. We also show that optioned stocks overreact to the arrival of negative news, but react efficiently to positive news. However, the overreac...