Regulators and some large investors have recently raised concerns about temporary or transitory volatility in highly automated financial markets. It is far from clear that high-frequency trading, fragmentation, and automation are contributing to transitory volatility, but some institutions...

This paper examines the effects of pre-trade opacity on market liquidity in the presence of market fragmentation. In the laboratory, we create a fragmented market by allowing trading on two venues (i.e., limit order books). By varying the features on one of the venues, we study the treatment...

We show short selling in corporate bonds forecasts future bond returns. Short selling predicts bond returns where private information is more likely, in high-yield bonds, particularly after Lehman's collapse. Short selling predicts returns following both high and low past bond returns. This,...

We examine the effects of high frequency traders (HFTs) on liquidity using the September 2008 short sale ban. To disentangle the separate impacts of short selling by HFTs and non-HFTs we use an instrumental variables approach exploiting differences in the ban's cross-sectional impact on HFTs and...

We study price pressures, i.e., deviations from the efficient price due to risk-averse intermediaries supplying liquidity to asynchronously arriving investors. Empirically, New York Stock Exchange intermediary data reveals economically large price pressures, 0.49% on average with a half life of...

Traditional liquidity measures can provide a false impression of the liquidity and stability of financial market trading. Using data on auctions (bids wanted in competition; BWICs) from the collateralized loan obligation (CLO) market, we show that a standard measure of liquidity, the effective...