We consider a setting where investors receive private signals about cash flows as well as their betas. We obtain a closed-form solution for the case where informed agents are risk neutral and the market maker is risk averse. Market liquidity is non-linear and non-monotonic (under reasonable...

We analyze a model with information asymmetry where owning stock confers direct utility, in addition to impacting wealth. In contrast to settings based on wealth considerations alone, expected stock prices deviate from expected fundamentals even when assets are in zero net supply. Stocks that...

While trading appears to be hazardous to most individual investors' wealth, some individual investors with well-functioning informational networks may be able to turn a profit. Indeed, we find that in the Chinese stock market, wealthy investors with portfolio values above the 99.5th percentile...

We propose that the volatility of order flow is a proxy for costs of information asymmetry, as order flow volatility varies positively with parameters that also influence adverse selection costs of trading. Empirically, order flow volatility is significantly higher prior to earnings or merger...

The effectiveness of liquidity provision by HFT firms via the limit order book is an unexplored but central policy issue. Using a unique dataset consisting of limit order placement, execution, and cancellations on Nasdaq, we find that HFT firms do not cancel orders more frequently than non-HFT...

We explore the optimal timing of voluntary disclosures by firms. By delaying disclosure of a signal, firms encourage the acquisition of correlated signals by reducing informed investors' exposure to the long-term risk of holding the asset. Immediate disclosure reduces rents from acquiring the...

This paper studies the dynamics of high-frequency market efficiency measures. We provide evidence that these measures co-move across stocks and with each other, suggesting the existence of a systematic market efficiency component. In vector autoregressions, we show that shocks to funding...

How do exchange-traded funds (ETFs) influence real investment policies? We find that ETF ownership is associated with an increase in the sensitivity of real investment to Tobin's q. This implies a managerial learning channel, wherein higher ETF ownership increases price informativeness about...

The distance between short- and long-run moving averages of prices (MAD) predicts future equity returns in the cross-section. Annualized value-weighted alphas from the accompanying hedge portfolios are around 9%, and the predictability goes beyond momentum, 52-week highs, profitability, and...

Liquid stocks may attract short-term traders who could attenuate the informativeness of stock prices about long-run fundamentals. As a result, managers may be less (more) likely to rely on the market prices of more (less) liquid stocks when making real investment decisions. Supporting this...