This paper studies a dynamic network economy where risk averse traders trade multi-laterally over the counter but cannot commit to fulfill their short positions. We show that, although the level of trade is below the first-best, bilateral clearing with collateral can provide an allocation superior to those without collateral. However, with use of collateral, the optimal bilateral clearing contr...

Available online 18 March 2008 This paper compares trading and non-trading mechanisms for price discovery during the Nasdaq pre-open and examines whether prices discovered though non-trading mechanisms are less efficient or reveal less information than prices discovered through trading. As Nasdaq pre-open trading volume increased, the opening price became more efficient and price discovery shif...

Using the introduction of Arrowhead low latency trading platform by Tokyo Stock Exchange as a natural experiment, I analyze the impact of high frequency trading on market quality of JREITs, in terms of liquidity, volatility, and systemic risks. I also analyze the impact of the 2008 financial crisis. The results document that while the crisis has significantly deteriorated the market quality, th...

Prior studies have documented that stock returns are abnormally high during the years following share repurchases and abnormally low following seasoned equity offerings, relative to various benchmarks of expected returns. While we confirm this evidence in the event data as of 2002, we do not find robust long-run abnormal returns following either stock repurchases or issuances after 2002. Instit...

We describe conditions on signal distributions that are necessary and sufficient for informational herding in a stylized model of sequential specialist security trading. Curiously, there can be persistent herding even with signals that satisfy the Monotone Likelihood Ratio Property. Price paths are strongly biased in the direction of the herd but prices are also very sensitive to movements agai...

Do Brokers Misallocate Customer Trades? Evidence from Futures Markets JEL Classification number: G12, G13, G18 In the context of futures markets, we study whether brokers allocate more favorable trades to their own accounts, and less favorable trades to their customers. We find that, within a thirty minute trading bracket, brokers on average buy at a lower price and sell at a higher price for t...

Extensive empirical research has shown that in many markets institutional investors have a significant impact on prices and mitigate its adverse effects through their trading strategies. This paper develops a dynamic model of such thin markets, in which the market structure is one of bilateral oligopoly. The paper demonstrates that market thinness qualitatively changes equilibrium properties of...

We examine how investor preferences and beliefs affect trading in relation to past gains and losses. The probability of selling as a function of profit is V-shaped; at short holding periods, investors are more likely to sell big losers than small ones. There is little evidence of an upward jump in selling at zero profits. These findings provide no clear indication that realization preference ex...

Using a proprietary dataset of institutional investors’ equity transactions, we document that institutional trading desks can sustain relative performance over adjacent periods. We find that trading-desk skill is positively correlated with the performance of the institution’s traded portfolio, suggesting that institutions that invest resources in developing execution abilities also invest in ge...

Article history: Accepted 25 February 2013 JEL classification: G12 G14 E43