Starting from basic hypotheses on how footprints from hidden orders are interpreted by short-term traders, we derive a fair price model that predicts market impact for non-uniform participation rate schedules. We use this model to derive an optimal execution schedule for a risk-averse trader....

During currency crises, large traders once simultaneously short the asset markets and currency market. We study the large trader's information manipulation in crises by introducing a large trader in an asset market and a currency-attack coordination game with imperfect information. The asset...

We allow a strategic trader to choose when to acquire information about an asset's payoff, instead of endowing her with it. When the trader dynamically controls the precision of a flow of information, the optimal precision evolves stochastically and increases with market liquidity. However,...

Speed hierarchy not only motivates fast trading competition on less precise information but also renders slower traders more informative. As a result, endogenous speed acquisition in equilibrium affects how information is produced and spread. When information diffusion is characterized by its...

Technical analysis (TA) is modeled as a method to infer market liquidity demand. Risk-averse market makers supply immediacy to an informed trader and uninformed technical traders, who conduct TA and trade strategically, and to liquidity traders, who trade randomly. Price change is positively...

This paper is concerned with how a front-running high-frequency trader (HFT) influences the large trader: whether and under what conditions the latter is harmed or benefited. We study, in the extended Kyle's model, the interactions between a large informed trader and an HFT who can predict the...

Financial markets enable risk sharing and efficient allocation of capital. We characterize how these roles interact in a “feedback effects” model with diversely informed, risk-averse investors and a manager who learns from prices when making an investment decision. While learning from prices...

We examine the Kondor theoretical explanation of an enduring puzzle: trading volumes and stock return volatility peak after the release of public information. Using a comprehensive data set of institutional holdings and earnings announcements, we find supporting evidence that the proportion of...

This paper introduces a theory of market incompleteness based on the information transmission role of prices and its adverse impact on the provision of insurance in financial markets. We analyse a simple security design model in which the number and payoff of securities are endogenous. Agents...