In this paper we survey the theoretical and empirical literatures on market liquidity. We organize both literatures around three basic questions: (a) how to measure illiquidity, (b) how illiquidity relates to underlying market imperfections and other asset characteristics, and (c) how...

Using a large representative sample of Indian retail equity investors, many of them new to the stock market, we show that recent investment experiences affect portfolio composition. Because investors are imperfectly diversified, cross-sectional variation in their investment experiences allows us...

We build an equilibrium model to explain why stock return predictability concentrates in bad times. The key feature is that investors use different forecasting models, and hence assess uncertainty differently. As economic conditions deteriorate, uncertainty rises and investors' opinions...

I introduce a method for gauging the qualitative similarity of firm-specific information based on linguistic commonality in newswire text. I show that this new qualitative similarity measure predicts future cross-firm return correlation even after accounting for the pair's contemporaneous price...

The VIX barely drops at macro-announcements. This is at odds with virtually all models that attempt to explain the "macro-announcement premium." We point out that the macro-announcement sample is too small, considering the high volatility and fat tail of daily returns. Our small-sample argument...

In this paper, the interactions between a large informed trader (IT, for short) and a high-frequency trader (HFT, for short) who can anticipate the former's incoming order are studied in an extended Kyle's model. Equilibria under various specific situations are discussed. We find that, in...

The well-documented underreaction of stock prices to news exhibits substantial time variation, and comoves with institutional capital and trading motives. We show that higher risk-bearing capacity of financial intermediaries and lower passive ownership of stocks increase price underreaction....

This paper studies how public disclosure of past trade details affects price discovery dynamics under asymmetric information with heterogenous hedging motives. We model that an informed buyer (informed trader) sequentially trades with a series of uninformed sellers (hedgers). The informed buyer...

This paper proposes validation using simulation based indirect estimation. It uses typical characteristic moments of financial market data to assess the similarity of simulation outcomes.

This paper quantitatively accounts for the cyclical dynamics of key macroeconomic housing and mortgage market variables using a tractable, search-theoretic model of housing with equilibrium mortgage default. To explain these dynamics, the model highlights the importance of liquidity spirals...