Many proxies of illiquidity have been used in the literature that relates illiquidity to asset prices. These proxies have been motivated from an empirical standpoint. In this study, we approach liquidity estimation from a theoretical perspective. Our method explicitly recognizes the analytic...

This study develops an econometric model that incorporates features of price dynamics across assets as well as through time. With the dynamic factors extracted via the Kalman filter, we formulate an asset-pricing model, termed as the dynamic factor pricing model (DFPM). We then conduct...

This paper studies cross-sectional variations in stock trading activity for a comprehensive sample of NYSE/AMEX and Nasdaq stocks over a period of thirty-six years. Our theoretical framework indicates that trading activity depends on the extent of liquidity trading, the mass of informed agents,...

In this study, we employ order imbalance measures to provide evidence that there exists an individual/institutional dichotomy in reactions to seasoned equity offerings (SEOs). The normally positive relation between imbalances and returns disappears for trade number imbalances but remains intact...

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...

In this study, we employ order imbalance measures to provide evidence that there is cross-sectional heterogeneity in investor reactions to seasoned equity offerings (SEOs). The normally positive relation between imbalances and returns disappears for trade number imbalances but remains intact for...

In this study, we employ order imbalance measures to provide evidence that there exists an individual/institutional dichotomy in reactions to seasoned equity offerings (SEOs). The evidence supports the notion that small, possibly naıve, individual investors keep trading SEO stocks...

Using intradaily order flows processed via the Lee and Ready (1991) algorithm for NYSE/AMEX-listed stocks over the past 27 years, I estimate a set of price-impact parameters. The results provide strong evidence that price impact is priced in the cross-section of stock returns, even after...