Recent developments in financial economics have included many explorations into market microstructure, that is, the internal functioning of markets and the ways in which they provide liquidity to traders. An important contribution of this literature is that prices can deviate from their...

This paper presents a model of large institutional and small individual investors choosing stocks. Dividend policy of firms is determined by the preferences of the resulting stockholders. Large investors choose to invest in large corporations because it lowers their transaction costs. Since...

This paper explores whether speculative activity can, in practice, generate the ARCH-type behavior found in financial time series. Specifically, G7 equity market indices are examined for evidence of a dynamic whereby speculative interest is self-sustaining - that is, markets can become...

In financial markets characterized by imperfect depth, speculative trading will have transitory effects on the market price as market makers must be compensated for the risk of holding the asset. The number of people providing liquidity to a market will generally be endogenously determined by...