To understand the nature of hedge fund managers' skills, we study the implementation of risk arbitrage by hedge funds using their portfolio holdings and comparing them with those of other institutional arbitrageurs. We find that hedge funds significantly outperform a naive risk arbitrage...

We explore a new dimension of fund managers' timing ability by examining whether they can time market liquidity through adjusting their portfolios' market exposure as aggregate liquidity conditions change. Using a large sample of hedge funds, we find strong evidence of liquidity timing. A...

We assess the informational content of an open limit order book from three directions: (1) Does the limit order book allow better inferences about a security's value than simply the best bid and offer prices from the first step of the book? If it does, how much additional information can be...

While recent studies document increasing idiosyncratic volatility over the past four decades, an explanation for this trend remains elusive. We establish a theoretic link between growth options available to managers and the idiosyncratic risk of equity. Empirically both the level and variance of...

This paper examines the information embedded in both the stock and option markets prior to takeover announcements. During normal periods, buyer-seller initiated stock volume imbalances are significant predictors of next-day stock returns and option volume imbalances are uninformative. However,...

We test the hypothesis that insider trading impairs market liquidity, by analyzing intraday trades and quotes around 1,497 IPO lockup expirations in the period 1995-1999. We find that, while lockup expirations are associated with considerable insider trading for some IPO firms, they have little...

This paper tests for differences in execution costs among specialist firms for NYSE listed securities. Execution cost differences provide a useful measure of the relative performance of specialist firms. We find a substantial difference in effective spreads and order processing costs across...

The Toronto Stock Exchange (TSE) switched from a fractional to a decimal trading system on April 15, 1996. This paper examines the impact of decimalization on the competition for order flows between Canadian and U.S. exchanges by analyzing TSE stocks cross-listed on U.S. exchanges. We find that...

Reliable excess returns from active portfolio management derive from informed trading. We investigate the information content of informed trading in the equity market and the options market. We find that informed equity trading and options trading are positively correlated in the time-series,...