This work presents a theoretical and empirical evaluation of the role of market belief in the structure of risk premia. Our main result is that fluctuations in market belief are large contributors to the time variability of risk premia. On average, the risk premium on holding Federal Funds...

We extend Kyle's (1985) model of insider trading to the case where liquidity provided by noise traders follows a general stochastic process. Even though the level of noise trading volatility is observable, in equilibrium, measured price impact is stochastic. If noise trading volatility is...

This paper argues that a guru possessing a multi-dimensional informational advantage may want to truthfully report her opinion to the media to learn more out of the actions of other, sometimes better-informed traders.

In this paper, the interactions between a large informed trader (IT, for short) and a high-frequency trader (HFT, for short) who can anticipate the former's incoming order are studied in an extended Kyle's model. Equilibria under various specific situations are discussed. We find that, in...

This paper develops a market microstructure model with asymmetric information in order to quantify the influence which practical decision rules have on asset prices. The users of practical decision rules have incomplete information at their disposal and trade in a market with both fully informed...

This paper examines how technological innovations drive fast trading investment for both speculators and exchanges and their impact on market. The negative externality of the speed acquisition from fast speculators can result in excessive investment, which is intensified as speculators' speed...

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...

This paper develops a finite-period model of rational bubbles where trade of an asset takes place through a chain of middlemen. We show that there exists a unique equilibrium, and a bubble can occur due to higher-order uncertainty. Under reasonable assumptions, the equilibrium price is...

This study shows that the information content of FX transactions depends on the identity of market participants. Using spot FX transactions of a major Australian bank, we find that central banks have the greatest price impact, followed by non-bank financial institutions (NBFIs) such as hedge...

The paper contrasts theories that explain diverse belief by asymmetric private information (in short PI) with theories which postulate agents use subjective heterogenous beliefs (in short HB). We focus on problems where agents forecast aggregates such as profit rate of the Samp;P500 and our...