Many proxies of illiquidity have been used in the literature that relates illiquidity to asset prices. These proxies have been motivated from an empirical standpoint. In this study, we approach liquidity estimation from a theoretical perspective. Our method explicitly recognizes the analytic...

Many proxies of illiquidity have been used in the literature that relates illiquidity to asset prices. These proxies have been motivated from an empirical standpoint. In this study, we approach liquidity estimation from a theoretical perspective. Our method explicitly recognizes the analytic...

This paper studies cross-sectional variations in stock trading activity for a comprehensive sample of NYSE/AMEX and Nasdaq stocks over a period of thirty-six years. Our theoretical framework indicates that trading activity depends on the extent of liquidity trading, the mass of informed agents,...

Market efficiency, the timely incorporation of information into prices, remains a central and controversial issue in finance. The short-horizon predictability of returns from past order flows is an inverse indicator of efficiency. We analyze this predictability for NYSE stocks that traded every...

We study the joint time-series of daily liquidity in government bond and stock markets over the period 1991 to 1998. Innovations in liquidity are positively and significantly correlated across stock and bond markets. Further, order imbalances in the stock market impact bond and stock liquidity,...

This paper studies the relation between order imbalances and daily returns of individual stocks. Our tests are motivated by a theoretical framework, whose distinguishing feature is that it explicitly considers how market makers with inventory concerns dynamically accommodate autocorrelated...

Daily returns for stocks listed on the New York Exchange (NYSE) are not serially dependent. In contrast, order imbalances on the same stocks are highly persistent from day to day. These two empirical facts can be reconciled if sophisticated investors react to order imbalances within the trading...

We focus on an intuitive measure of trading activity: the aggregate daily order imbalance, buy orders less sell orders, on the NYSE. Order imbalance increases following market declines and vice versa, which reveals that investors are contrarians in aggregate. Order imbalances in either...

Daily returns for stocks listed on the New York Exchange (NYSE) are not serially dependent. In contrast, order imbalances on the same stocks are highly persistent from day to day. These two empirical facts can be reconciled if sophisticated investors react to order imbalances within the trading...

We study the joint time-series of daily liquidity in government bond and stock markets over the period 1991 to 1998. Innovations in liquidity are positively and significantly correlated across stock and bond markets. Further, order imbalances in the stock market impact bond and stock liquidity,...