We examine the Paris Bourse, whose electronic limit order market closely resembles the downstairs markets envisioned by theorists, to test several theoretical predictions regarding upstairs trading. We present direct evidence in support of the Grossman (1992) prediction that upstairs brokers...

Quoted and effective bid-ask spreads on Nasdaq are two to four cents per share narrower, ceteris paribus, when stocks trade with a smaller tick size below $10 per share. There is no evidence of a reduction in liquidity with the smaller tick size. The largest spread reductions occur for stocks...

We use price data from an array of futures markets to test whether investors expect spot asset prices to revert, and we identify two sources of equilibrium mean reversion: negative covariation between prices and interest rates, and positive covariation between prices and benefits to holding the...

Several studies provide theoretic analysis of agents' motivations for trading in financial markets. Broadly speaking, these studies imply that trading volume results from (i) information flows, (ii) cross-sectional differences in agents' assessment of value, and (iii) agents' random liquidity...

We compare average trade execution costs during 1994 for sets of large, medium, and small capitalization stocks listed on the New York and Nasdaq stock markets. All measures of execution costs examined, including quoted bid-ask spreads, effective spreads (which allow for executions within the...

We exploit a discontinuity in the New York Stock Exchange Designated Market Maker (DMM) contract to identify causal effects of DMM participation on equilibrium market outcomes. We document that contractual features that enhance DMM participation are associated with increased depth, narrower...

Research on certain types of institutional order flow has highlighted potential destabilizing effects on market quality related to the fact that these orders can be anticipated by other market participants. Examples include the rebalancing of rules-based indexes and ETFs, including end-of-day...

This paper surveys the literature that studies fixed-income trading rules and outcomes, including Treasury securities, corporate and municipal bonds, and structured credit products. We compare and contrast the microstructure and regulation of fixed-income markets with equity markets. We...

We propose that fitted values from market-wide regressions of firm returns on lagged firm characteristics provide useful benchmarks for assessing whether average returns to certain stocks are abnormal. To illustrate, we study eight events where abnormal returns have been documented, including...

Kolari, Pynnonen, and Tuncez rely on simulation outcomes to criticize the normalization of firm characteristics employed by Bessembinder and Zhang (2013) to assess returns after major corporate events. However, their simulation outcomes simply verify that a non‐linear normalization is...