We show that the excessive use of hidden orders causes artificial price pressures and abnormal asset returns. Using a simple game-theoretical setting, we demonstrate that this effect naturally arises from mis-coordination in trading schedules between traders, when suppliers of liquidity do not...

We distinguish exogenous liquidity, which corresponds to the variability of bid-ask spreads for usual-sized transactions, from endogenous liquidity, which we interpret as the impact of liquidity on market prices when liquidating larger positions. Endogenous liquidity measures the risk that the...

In this paper we empirically analyze the permanent price impact of trades by investigating the relation between unexpected net order flow and price changes. We use intraday data on German index futures. Our analysis based on a neural network model suggests that the assumption of a linear impact...

Using microdata on stock-level lending positions from German mutual funds, we show that active funds use the equity lending market to obtain information about short sale demand. Funds reduce long positions in response to these demand signals, which allows fund managers to front-run public...

In this paper we show that informational and real frictions in CDS markets strongly affect CDS premia. We derive this main finding using a proprietary set of individual CDS transactions cleared by the Depository Trust & Clearing Corporation. We first show that CDS traders adjust the CDS premium...

We show that a common (identical across investors) irrationality in information processing can be enough to create nontrivial trade, using one of standard partial-equilibrium environments. We can attribute this trade to their common irrationality because we strip the investors and their...

Overconfidence is one of the most important biases in financial markets and commonly associated with excessive trading and asset market bubbles. So far, most of the finance literature takes overconfidence as a given, "static" personality trait. In this paper we introduce a novel experimental...

We consider an optimal liquidation model in which an investor is required to execute meta-orders during intraday trading periods, and his trading activity triggers child orders and endogenously affects future order flow, both instantaneously and permanently. Under the assumptions of risk...

This paper uses regulatory data to assess the value of retail order flow in the German equity market. To this end, we examine the performance of specialized retail market makers (RMMs) that internalize a large share of retail activity via affiliated trading venues. We show that retail market...