This paper evaluates the information content of trading activity in near-the-money option markets. The results provide compelling evidence consistent with hypotheses of delta- and vega-informed trading activity in near-the-money option markets for firms with actively traded near-the-money...

In theoretical models of limit order books populated with liquidity traders there is a link between order aggressiveness, spreads, and the cost of waiting for execution. We directly test these models using an experimental setting where waiting time is important for traders, namely the...

Trading imbalances are often interpreted to be the result of informed trading. Yet imbalances may simply reflect random shocks or the results of liquidity trading. If trading imbalances reflect informed trading, they should anticipate major news events. Using announcements of earnings,...

Using 2000–2010 data for 84 stocks listed in the Spanish Stock Exchange (SSE) and 2009–2010 data for 240 stocks listed in the New York Stock Exchange (NYSE), we provide robust evidence of daily asymmetries in the contribution of ask and bid quotes to price discovery. Asymmetries happen in...

Gande and Lewis (2009) show class-action lawsuit filings are anticipated by investors. In this paper, we examine short-selling activity surrounding lawsuit filings and find that short activity surges in the days before the filing. However, short-selling activity remains significantly high until...

We analyze the relation between earnings forecast accuracy and the expected profitability of financial analysts. Modeling forecast errors with a multivariate normal distribution, a complete characterization of the payoff of each analyst is provided. In particular, closed-form expressions for the...

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 adverse-selection risk lead to wider spreads in both stock and options markets. The hedging effect on spreads is...

We perform a large-scale empirical analysis of pairs trading, a popular relative-value arbitrage approach. We start with a cross-country study of 34 international stock markets and uncover that abnormal returns are a persistent phenomenon. We then construct a comprehensive U.S. data set to...

We study the impact of style representation on portfolio choice using the choices of the Swedish population in their retirement accounts. We show that investor choice depends on how funds are grouped in the menu (“styles”). An exogenous increase in the style representation increases...

As equity trading becomes predominantly electronic, is there still value to a traditional, intermediated dealer system? We address this question by comparing the impact of the organization of trading on volume, liquidity, and price efficiency in a quote-driven dealer market and in an...