Recent developments in financial economics have included many explorations into market microstructure, that is, the internal functioning of markets and the ways in which they provide liquidity to traders. An important contribution of this literature is that prices can deviate from their...

We explore signaling behavior in settings with a discriminating activity and several costly nondiscriminating ("money-burning") activities. Existing theory provides no basis for selecting one method of burning money over another. When senders have better information about activity costs than...

In financial markets characterized by imperfect depth, speculative trading will have transitory effects on the market price as market makers must be compensated for the risk of holding the asset. The number of people providing liquidity to a market will generally be endogenously determined by...

The high variance of exchange rates can be partially explained by the fact that traders with transitory demands can have temporary effects on the market rates. In this paper we explore theoretically the effect on market prices of these non-informational traders when the number of market makers...

December 1995 <p>We explore signaling behavior in settings with a discriminating signal and several costly nondiscriminating ("money burning") activities. In settings where informed parties have many options for burning money, existing theory provides no basis for selecting one nondiscriminating...</p>

Mutual funds whose share prices are not calculated with enough precision face the danger of opportunistic trading. This fact is documented empirically with respect to the Government Securities Investment Fund (G Fund), a part of the defined contribution plan run by the US federal government for...

This paper explores whether speculative activity can,in practice,generate the ARCH- type behavior found in .nancial time series.Specifically,G7 equity marke indices are examined for evidence of a dynamic whereby speculative interest is self-sustaining, that is,markets can become 'hot'. A...