A central, but largely untested, assumption in the modern literature on financial markets is that investors trade strategically, taking account of the effect of their trades on prices. The authors use a simultaneous equations approach motivated by theoretical analysis to test this assumption...

The authors analyze the effects of a finite tick size and the practice of 'payment-for-order flow' on market competition. Even if the New York Stock Exchange (NYSE) reservation price is superior to its non-NYSE counterpart, brokers may, because of payment-for-order flow, prefer to execute orders...

This study examines bid-ask spreads in the stock market around the introduction of the Standard and Poor's (S&P) 500 index futures contract and tests the following competing hypotheses: (1) stock spreads may widen as uninformed traders migrate to futures and (2) spreads may narrow because...

The author explores the effects of trade-size dependent transaction taxes on market liquidity and information acquisition. Transaction taxes cause strategic informed traders to scale back their aggregate trading, which, surprisingly, causes both market liquidity and informed investor profits to...

We develop a model that accounts for medium-term continuation (momentum) in asset returns by analyzing information acquisition about news events (such as earnings announcements) in a multiperiod setting. As more and more agents become informed about news events, temporal uncertainty is resolved...