We develop a model to analyze the effects of hedging activities by options market makers (OMMs) facing informed trading. The model suggests that OMMs' hedging activities motivated by the adverse-selection risk lead to wider spreads in both stock and options markets. The hedging effect on spreads...

We infer motives for trade initiation from market sidedness. We define trading as more two-sided (one-sided) if the correlation between the numbers of buyer- and seller-initiated trades increases (decreases), and assess changes in sidedness (relative to a control sample) around events that...

This study examines managerial ethics with regard to earnings reporting and insider trading. Managers of firms with optimistic forecasts or firms with higher Street earnings versus GAAP earnings are considered candidates to be misleading investors. Two hypotheses are examined: 1) that these...

In the context of the statutory tax rate reductions enacted in the Tax Reform Act of 1986, this paper investigates the degree to which capital market participants anticipate and correctly interpret temporary income effects of tax-motivated income shifting. We find evidence consistent with...

This article relates interim financial reporting frequency in a multiperiod Kyle framework to securities prices, trading volume, market liquidity, and analysts' information acquisition expenditures. The model supports conventional wisdom that more frequent interim reporting improves the...

This study contains empirical findings regarding the effect of interim earnings announcements on investors' trading behavior. The aim of the paper is to empirically investigate whether the trading volume reaction to an interim earnings announcement is associated with the information content of...

We document that analysts cater to short-term investors by issuing optimistic target prices. Catering dominates among analysts at brokers without an investment banking arm as they face lower reputational cost. The market does not see through the analyst catering activity and their forecasts lead...

Security analysts tend to bias stock recommendations upward, particularly if they are affiliated with the underwriter. We analyze how investors account for such distortions. Using the NYSE Trades and Quotations database, we find that large traders adjust their trading response downward: they...

Several recent papers assume that private information (PIN), proposed by Easley, Hvidkjaer and O'Hara (2002, 2004), is a determinant of stock returns. We replicate Easley, Hvidkjaer and O'Hara (2002) and show that while PIN does predict future returns in the sample they analyze, the effect is...