Competition among stock exchanges has increased dramatically over the last decade. To attract trading volume, most exchanges introduced makertaker fees, an incentive scheme that rewards liquidity suppliers and charges liquidity demanders. Using a change in fees on the Toronto Stock Exchange, we analyze how the breakdown of trading fees between liquidity demanders and suppliers affects market ou...

Prediction Markets for Economic Forecasting Prediction markets – markets used to forecast future events – have been used to accurately forecast the outcome of political contests, sporting events, and, occasionally, economic outcomes. This chapter summarizes the latest research on prediction markets in order to further their utilization by economic forecasters. We show that prediction markets ha...

This paper investigates whether the degree of predictability can be explained by existing asset pricing models, and provides two theoretical upper bounds on the R-square of the regression of stock returns on predictors for given classes of models of interest. Empirically, we find that the predictive R-square is significantly larger than the upper bounds permitted by well known asset pricing mod...

Fama and French [2002. The equity premium. Journal of Finance 57, 637–659] estimate the equity premium using dividend growth rates to measure expected rates of capital gain. We apply their method to study the value premium. From 1945 to 2005, the expected value premium is on average 6.1% per annum, consisting of an expected dividend growth component of 4.4% and an expected dividend price ratio ...

I use parametric and semiparametric methods to test for the order of integration in stock market indexes. The results, which are based on the EOE (Amsterdam), DAX (Frankfurt), Hang Seng (Hong Kong), FTSE100 (London), S&P500 (New York), CAC40 (Paris), Singapore All Shares, and the Japanese Nikkei, show that in almost all of the series the unit root hypothesis cannot be rejected. The Hang Seng an...

It has been widely debated how much nonsynchronous trading drives asymmetric portfolio cross-autocorrelations: lagged returns on a portfolio of larger-capitalization stocks are far more heavily correlated with current returns on a portfolio of smallercapitalization stocks than the converse. This paper proposes a new method to generate precise estimates of the extent to which nonsynchronous trad...

This study analyses the information diffusion between Chinese A shares (restricted to domestic investors) and B shares (restricted to foreign investors). The results show that there is an important long-run information diffusion between A and B shares. In the Shanghai stock market, information flows from foreign to domestic investors. However, in the smaller and less liquid Shenzhen stock marke...

We exploit a unique natural experiment – recent restrictions of dark trading in Canada – and proprietary trade-level data to analyze the effects of dark trading. Disaggregating two types of dark trading, we find that dark limit order markets are beneficial to market quality, reducing quoted, effective and realized spreads and increasing informational efficiency. In contrast, dark midpoint cross...

Recent research has documented that learning and evolution are capable of generating many well known features in financial times series. We extend the results of LeBaron & Yamamoto (2007) to explore the impact of varying amounts of imitation and agent learning in a simple order driven market. We show that in our framework, imitation is critical to the generation of long memory persistence in ma...

A single-item ascending auction in which agents observe multidimensional Gaussian signals about their valuation of the good is studied. A class of equilibria is constructed in two steps: (i) the private signals of each agent are projected into a one-dimensional equilibrium statistic, and (ii) the equilibrium strategies are constructed “as if” each agent observed only his equilibrium statistic. ...