We propose an equilibrium model to study the impact of short-sale constraints on market prices and liquidity in imperfectly competitive markets where market makers have significant market power and are averse to inventory risk. We show that shortsale constraints decrease bid because of the market power and increase ask because of the risk aversion. Our model can therefore help explain why short...

We use a novel framework that integrates standard asset pricing and microstructure models to study how asymmetric information, imperfect competition among market makers, and risk aversion affect equilibrium illiquidity and asset pricing. All the main results are obtained in closed-form. In our model, market power, asymmetric information, and market-making cost drive market illiquidity. This mod...

There are few empirical tests that support the existence of information asymmetry. We add to this literature using bid-ask spread to capture differences in the level of information asymmetry just prior to the announcement of an open market acquisition of acreage or reserves by U.S. oil and gas firms over the period 1993 to 2011. Acreage is an area of land that is believed to contain reserves an...

In an efficient market, the fundamental value of a security fluctuates randomly. However, trading costs induce negative serial dependence in successive observed market price changes. In fact, given market efficiency, the effective bid-ask spread can be measured by

The cross-section of options bid–ask spreads with their strikes are modelled by maximising the Kaniadakis entropy. A theoretical model results with the bid–ask spread depending explicitly on the implied volatility; the probability of expiring at-the-money and an asymmetric information parameter (κ). Considering AIG as a test case for the period between January 2006 and October 2008, we find tha...

We study the price discovery in a foreign exchange electronic limit order market on a daily basis, by examining the informativeness of ask and bid quotes in the process of price formation. Using the data of prices and trades in the Euro–Dollar spot market via Electronic Broking Services (EBS), we find bid quotes provide more price discovery. This dominance of bid quotes in price discovery is st...

This research is an event study that aims to examine the stock returns and liquidity of financial companies during Indonesia's first Covid-19 case. Researchers use monthly closing price data calculate related company liquidity. The sample in this were go public listed on Indonesia Stock Exchange for period March 2020 - 2022. With these criteria, samples used 26 companies. Research sampling tech...