This paper analyzes the Amihud (2002) measure of illiquidity and its role in asset pricing. It is shown first that the effect of illiquidity on asset pricing is clarified by using the turnover version of the Amihud measure and including firm size as a separate variable. When we decompose the...

We decompose the structural estimate of the probability of informed trading, PIN, into components that capture informed trading on good and on bad news. We estimate these two components at quarterly intervals, and provide new evidence that they capture informed trading around earnings...

Many proxies of illiquidity have been used in the literature that relates illiquidity to asset prices. These proxies have been motivated from an empirical standpoint. In this study, we approach liquidity estimation from a theoretical perspective. Our method explicitly recognizes the analytic...

This paper studies cross-sectional variations in stock trading activity for a comprehensive sample of NYSE/AMEX and Nasdaq stocks over a period of thirty-six years. Our theoretical framework indicates that trading activity depends on the extent of liquidity trading, the mass of informed agents,...

In this study, we employ order imbalance measures to provide evidence that there exists an individual/institutional dichotomy in reactions to seasoned equity offerings (SEOs). The normally positive relation between imbalances and returns disappears for trade number imbalances but remains intact...

How does an idiosyncratic shock to the liquidity of a stock affect the liquidity and prices of related stocks? Utilizing the feature that the second stage of a two-step spinoff increases the float of an already-public firm, we document strong evidence that the enhanced liquidity of spun-off...

In this study, we employ order imbalance measures to provide evidence that there exists an individual/institutional dichotomy in reactions to seasoned equity offerings (SEOs). The evidence supports the notion that small, possibly naıve, individual investors keep trading SEO stocks...

We estimate buy- and sell-order illiquidity measures (lambdas) for a comprehensive sample of NYSE stocks. We show that sell-order liquidity is priced more strongly than buy-order liquidity in the cross-section of equity returns. Indeed, our analysis indicates that the liquidity premium in...

Using intradaily order flows processed via the Lee and Ready (1991) algorithm for NYSE/AMEX-listed stocks over the past 27 years, I estimate a set of price-impact parameters. The results provide strong evidence that price impact is priced in the cross-section of stock returns, even after...

We develop a model to analyze the effects of hedging activities by options market makers (OMMs) facing informed trading. The model suggests that OMMs' hedging activities motivated by the adverse-selection risk lead to wider spreads in both stock and options markets. The hedging effect on spreads...