We use a controlled economic experiment to examine the implications of asymmetric information for informational linkages between a stock market and a traded call option on that stock. The setting is based on the Kyle model and Back (1993). We find that an insider trades aggressively in both the...

Dealers in over-the-counter securities form networks to mitigate search frictions. The audit trail for municipal bonds shows the dealer network has a core-periphery structure. Central dealers are more efficient at matching buyers and sellers than peripheral dealers, which shortens intermediation...

We study the effect of frequent trading opportunities and categorization on pricing of a risky asset. Frequent opportunities to trade can lead to large distortions in prices if some agents forecast future prices using a simplified model of the world that fails to distinguish between some states....

Two important characteristics of current equity markets are the large number of trading venues with publicly displayed order books and the substantial fraction of trading that takes place in the dark, outside such visible order books. This paper evaluates the impact of dark trading and...

The paper analyses the effects of strategic behaviour by an insider in a price discovery process, akin to an information tâtonnement, in the presence of a competitive informed sector. Such processes are used in the pre-opening period of continuous trading systems in several exchanges. It is...

This Paper studies the formation of opening prices for German and French stocks, simultaneously traded in Frankfurt and Paris. We analyse theoretically the case where investors and traders based in the same country as the firm have better information on its value than foreign traders. Our model...

We study the effects of sterilized intervention operations executed on behalf of the Swiss National Bank (SNB) using tick-by-tick transaction data between 1985-95.We extend preliminary analysis conducted by Fischer and Zurlinden (1999) by matching these data with intra-day indicative exchange...

The paper offers a new theoretical framework to examine the role of intermediaries between creators and users of new inventions. We find that uncertainty about the profitability of investing in new inventions generates a basis for intermediation. An intermediary may provide an opportunity to...

This paper provides a game theoretic model of price formation and order placement decisions in a dynamic limit order market. Investors can choose to post limit orders or to submit market orders. Limit orders result in better execution prices but face a risk of non-execution and a winner’s...

In many security markets, dealers trade with their regular clients at a discount relative to prevailing bid and ask quotes. In this article we provide an explanation to this phenomenon. We consider a dealer and an investor engaged in a long-term relationship. The dealer assigns a reputational...