Sudden big price changes are followed by periods of high and persistent volatility. I develop a tractable dynamic rational expectations model consistent with this observation. An infinity of agents possess dispersed information about future dividends and trade in centralized markets. Information...

We propose a novel and tractable equilibrium model to study how information asymmetry, competition among market makers, and investors' risk aversion affect asset pricing, market illiquidity and welfare. The main innovation is that market makers compete through choosing simultaneously quantities...

Many empirical studies suggest that correlated demand is important in driving liquidity commonality among stocks. However, there are still no theoretical studies on how demandside factors cause and affect liquidity and return commonality. We propose a tractable equilibrium model with asymmetric...

The peer-to-peer loan market was designed to bring together borrowers and lenders without banks as middlemen. Yet over time P2P lending platforms have evolved into new intermediaries, performing essentially all tasks related to loan evaluation. By contrast, lenders are overwhelmingly passive and...

Long-held intuition dictates that information-based trade is impossible without exogenous noise. Risk seekers can resolve this conundrum. Even though such agents have negative risk aversion, they act as utility maximizers because they fully internalize their impact on prices. If their love of...

We develop a parsimonious price formation model to study information aggregation and information acquisition in the presence of trading delays. If delays apply uniformly to uninformed and informed traders, the level of delays does not affect information aggregation. Traders' information...

We develop a model to study the impacts of speculative position limits in commodity futures market. In the spirit of Dodd-Frank Act, regulators believe that position limit on speculators would dampen futures price volatility and prevent market manipulation. We show that this is not true due to...

The Kyle (1985) model is extended to take into account market maker competition and the spread. It is shown that with a spread the Kyle model has a Nash equilibrium also with two market makers, not only with three or more, as shown in earlier research. The spread is endogenized, and two testable...

Through extending a standard Grossman and Stiglitz (1980) noisy rational expectations economy by a heterogeneous signal structure with signal-specific differences in uncertainty, we show that price momentum as well as reversal are not intrinsically at odds with rational behavior. Differences in...