We exploit a unique natural experiment—recent restrictions of dark trading in Canada and Australia—and proprietary trade-level data to analyze the effects of dark trading. Disaggregating two types of dark trading, we find that dark limit order markets are beneficial to market quality,...

How does a market digest order imbalance? We show that when market participants learn about the level of adverse selection (the risk of trading against better-informed counterparties) from order flow, a large order imbalance can be destabilizing, causing sharp price movements and evaporation of...

We investigate the new reality of exchange-traded funds (ETFs). We show that many ETFs are active investments in form (designed to generate alpha) or function (serve as building blocks of active portfolios). The median ETF has an Activeness Index of 93.1%. Active-in-form ETFs have positive...

We examine the welfare costs of informed trade in a new sequential trade model with elastic uninformed traders. Welfare losses occur when the liquidity costs of executing a trade exceed the potential gains from the trade. With long-lived private information, more informed traders lead to better...

We show that behind the aggregate effects of algorithmic and high-frequency traders (AT/HFT) is substantial heterogeneity in how individual algorithms impact institutional trading costs. Using unique trader-identified regulatory data, we find that the cluster of “harmful” algorithmic traders...

How do economic agents perceive risk? We address this question through the neurosciencetheory of adaptive normalization, which predicts that after prolonged exposure to highvolatility, people perceive moderate volatility as lower than the actual level (and vice versa)due to adaptation to the...

Using new empirical measures of information leadership, we find that the role of options in price discovery is up to five times larger than previously thought. Approximately one-quarter of new information is reflected in options prices before being transmitted to stock prices, with options...

This study develops a method that uses surveys of company managers to measure the size of a shadow economy. Our method is based on the premise that company managers are the most likely to know how much business income and wages go unreported due to their unique position in dealing with both of...

State-owned enterprises (SOEs) account for a substantial proportion of GDP, employment and assets in many countries. This article reviews the theory relating to SOEs: their economic rationale, the circumstances in which SOEs are the preferred form of government intervention, and their efficiency...

This report presents estimates of the size of the shadow economy in Moldova and Romania during the years 2015-2016. The estimates are based on surveys of entrepreneurs in both countries, following the method of Putniņš and Sauka (2015). The components of the shadow economy captured by this...