Macro announcements change the equilibrium riskfree rate. We find that treasury prices reflect part of the impact instantaneously, but intermediaries rely on their customer order flow after the announcement to discover the full impact. This customer flow informativeness is strongest when analyst...

U.S. trading in non-U.S. stocks has grown dramatically. Round-the-clock, these stocks trade in the home market, in the U.S. market and, potentially, in both markets simultaneously. We develop a general methodology based on a state space model to study 24-hour price discovery in a multiple...

If all intermediaries enter the same market-making “bet” on the same side, fast-moving capital gets tied up in a crowded trade. This creates systemic risk for a central clearing party (CCP) since multiple traders might default when the bet turns extremely sour. The CCP then has to unwind the...

We solve a Stackelberg game where a large uninformed seller executes optimally, fully cognizant of the response of Cournot-competitive market makers. The game therefore endogenizes both demand and supply of liquidity. The closed-form solution yields several insights. First, stealth trading is...

In this book chapter I review the insights that I developed when writing three papers on CCPs. In the process I benefitted greatly from an emerging academic literature on central clearing, from participants' feedback at conferences and seminars where I presented my work, and from various...

The electron microscope improved our vision by a factor of one million. Humans could finally see atoms. This study aims for a similar leap by studying trades at nanoseconds, a million times more precise than often used milliseconds. This enables one to observe asset re-allocations among...

Liquidity suppliers lean against the wind. We analyze whether high-frequency traders (HFTs) lean against large institutional orders that execute through a series of child orders. The alternative is HFTs trading "with the wind," that is, in the same direction. We find that HFTs initially lean...

Counterparty risk could hamper trade and worsen a financial crisis. A central clearing party (CCP) insures traders against counterparty default and thus benefits trade. Default of the CCP however becomes a new systemic risk. CCP risk management does not account for risk associated with crowded...

U.S. trading in non-U.S. stocks has grown dramatically. Round-the-clock, these stocks trade in the home market, in the U.S. market and, potentially, in both markets simultaneously. We use a state space model to study 24-hour price discovery. As opposed to the standard "variance ratio'' approach,...

We examine the effect of information asymmetry on equity prices in the local A- and foreign Bshare market in China. We construct measures of information asymmetry based on market microstructure models, and find that they explain a significant portion of cross-sectional variation in B-share...