Relatively little is known about the trading volume in derivatives relative to the volume in underlying stocks. We study time-series properties and the determinants of the options/stock trading volume ratio (O/S) using a comprehensive cross-section and time-series of data on equities and their...

We study the effect of options trading volume on the value of the underlying firm after controlling for other variables that may affect firm value. The volume of options trading might have an effect on firm value because it helps to complete the market (allocational efficiency) and because the...

Market efficiency, the timely incorporation of information into prices, remains a central and controversial issue in finance. The short-horizon predictability of returns from past order flows is an inverse indicator of efficiency. We analyze this predictability for NYSE stocks that traded every...

Deviations from no-arbitrage relations should be related to frictions associated with transacting; in particular to market illiquidity, because frictions impede arbitrage. Thus, financial market liquidity may play a key role in moving prices to fair values. At the same time, a wide futures/cash...

Daily returns for stocks listed on the New York Exchange (NYSE) are not serially dependent. In contrast, order imbalances on the same stocks are highly persistent from day to day. These two empirical facts can be reconciled if sophisticated investors react to order imbalances within the trading...

We focus on an intuitive measure of trading activity: the aggregate daily order imbalance, buy orders less sell orders, on the NYSE. Order imbalance increases following market declines and vice versa, which reveals that investors are contrarians in aggregate. Order imbalances in either...

Daily returns for stocks listed on the New York Exchange (NYSE) are not serially dependent. In contrast, order imbalances on the same stocks are highly persistent from day to day. These two empirical facts can be reconciled if sophisticated investors react to order imbalances within the trading...

In this paper, we focus on a previously unexplored but an intuitive measure of trading activity: the aggregate daily order imbalance, buy orders less sell orders, on the NYSE. Order imbalance increases following market declines and vice versa, which reveals that investors are contrarians on...

The market micro-structure literature has typically focussed on single assets. Prior to this paper there has been virtually no empirical work on the common determinants of liquidity. This paper documents that quoted spreads, quoted depth and effective spreads co-move with market-wide and...

We propose a protocol for identifying genuine risk factors. A genuine risk factor must be related to the covariance matrix of returns, must be priced in the cross-section of returns, and should yield a reward-to-risk ratio that is reasonable enough to be consistent with risk pricing. A market...