The goal of this paper is to study how informational frictions affect asset liquidity in OTC markets in a laboratory setting. The experiments replicate an OTC market similar to the one used in monetary and financial economics (Shi, 1995; Trejos and Wright, 1995; Duffie, Garleanu, and Pedersen, 2005):...

We analyze the extent to which investors in opaque markets price information from more transparent markets. Exploiting the natural experiment created by bond-insurer insolvency, we show that municipal bond investors ignore insurers' equity prices and CDS premia, yet react to insurers'...

We measure the information content of monthly analyst consensus forecasts for one-year-forward earnings per share (EPS) based on two well-established price discovery measures drawn from the area of market micro-structure research. Employing a 36-year sample of large US companies listed in the...

I propose an arbitrage-based theory of bubbles in economies with general portfolio constraints and differences in beliefs. I find that, in general, bubbles cannot exist unless the constraints restrict the demand for credit sufficiently to induce low interest rates. Speculation due to...

This paper constructs a new measure of attention allocation by local investors relative to nonlocals using aggregate search volume from Google. We first present a conceptual framework in which local investors optimally choose to focus their attention on local stocks when they receive private...

Distorted prices misguide managerial incentives and resource allocation. Distorted prices may occur when firms' stock prices are near their 52-week highs because investors tend to perceive the stocks as relatively overvalued and are reluctant to bid prices higher even if new information warrants...

This paper reviews the literature examining how costs of monitoring for, acquiring, and analyzing firm disclosures – collectively, “disclosure processing costs” – affect investor information choices, trades, and market outcomes. The existence of disclosure processing costs means that...

We provide new empirical evidence on the implications of public information arrival for investors' beliefs, using a daily measure of dispersion (uncertainty) of beliefs about firm underlying return distribution. Consistent with convergence in beliefs (less disagreement), the arrival of public...

I study how trading motives in asset markets affect equilibrium outcomes and welfare. I focus on two types of trading motives -- informational and allocational. I show that while a fully separating equilibrium is the unique equilibrium when trading motives are known, multiple equilibria exist...

We construct a measure of abnormal relative attention (ARA), reflecting unusual changes in attention paid to a stock by local relative to non-local investors, to measure local information advantages. An increase in this measure predicts higher returns in the short term. This predictive power is...