Does the presence of arbitrageurs decrease equilibrium asset price volatility? I study an economy with arbitrageurs, informed investors, and noise traders. Arbitrageurs face a trade-off between arbitrage and inference: they would like to buy assets in response to temporary price declines (the...

We show that Treasury bill auction procedures create classes of price-equivalent discount rates for bills with fewer than seventy-two days to maturity. We argue that it is inefficient for market participants to bid at a discount rate that is not the minimum rate in its class. The inefficiency of...

We study common determinants of daily bid-ask spreads and trading volume for the bond and stock markets over the 1991-98 period. We find that spread changes in one market are affected by lagged spread and volume changes in both markets. Further, spread and volume changes are predictable to a...

This paper examines how risk in trading activity can affect the volatility of asset prices. We look for this relationship in the behavior of interest rate swap spreads and in the volume and interest rates of repurchase contracts. Specifically, we focus on convergence trading, in which...

We examine 120 Nasdaq and Over-the-Counter "buy" recommendations made by Internet sites from April 1999 to June 2001. The stock picks show substantial short- and long-run price and liquidity gains, although no new information is revealed about them. For example, liquidity one year after the pick...

This paper explores liquidity movements in stock and Treasury bond markets over a period of more than 1800 trading days. Cross-market dynamics in liquidity are documented by estimating a vector autoregressive model for liquidity (that is, bid-ask spreads and depth), returns, volatility, and...