We propose a unified set of distance-based performance metrics that address the power and extreme-error problems inherent in traditional measures for asset-pricing tests. From a Bayesian perspective, the distance metrics coherently incorporate both pricing errors and their standard errors....

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...

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...

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...

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...

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...