In textbook models of exchange rate determination, the news contained in public information announcements is directly impounded into prices with there being no role for trading in this process of information assimilation. This paper directly tests this theoretical result using transaction level...

We study the relation between limit order flow, market order flow and returns. We develop a model where market-makers face inventory risk and adverse selection and show how prices depend on market and limit order flows. In the model, market-makers receive information through trade with customers...

We investigate the source of information advantage in inter-dealer FX trading using data on trades and counterparty identities. In liquid dollar exchange rates, information is concentrated among dealers that trade most frequently and specialize their activity in a particular rate. In...

Higher moments of long-horizon returns are important for asset pricing but are hard to measure accurately using standard techniques. We provide theory showing that short-horizon (e.g. daily) returns can be used to construct precise estimates of long-horizon (e.g. annual) moments without making...

We study the relation between limit order flow, market order flow and returns. We develop a model where market-makers face inventory risk and adverse selection and show how prices depend on market and limit order flows. In the model, market-makers receive information through trade with customers...

This paper studies the intraday relationship between ultra-fast machine-driven activity (UFA) and market quality in automated equity markets. We find that higher UFA is associated with lower intraday market quality (greater quoted and effective spreads and lower depth). This effect is...

We compute bid-ask spreads for the dollar/euro exchange rate and find them to be substantially larger than their deutschemark counterparts before introduction of the euro. We show that larger percentage spreads are not explained by volatility, trade intensity, and other standard explanatory...

We use transactional data from the USD and EUR segments of the plain vanilla interest rate swap market to assess the impact of the Dodd-Frank mandate that US persons must trade certain swap contracts on Swap Execution Facilities (SEFs). We find that, as a result of SEF trading, activity...

We measure the extent to which consolidated liquidity in modern fragmented equity markets overstates true liquidity due to a phenomenon that we call Ghost Liquidity (GL). GL exists when traders place duplicate limit orders on competing venues, intending for only one of the orders to execute, and...

Does it matter to market quality if broker identities are revealed after a trade and only to the two traders involved? We find that implementing full anonymity dramatically improves liquidity and reduces trader execution costs. To explain this, we compare theories based on asymmetric information...