Recently exchanges have been directly selling market data. We analyze how this practice affects price discovery, the cost of capital, return volatility, and market liquidity. We show that selling price data increases the cost of capital and volatility, worsens market efficiency and liquidity,...

How best to discern trading intentions from market data? We examine the accuracy of three methods for classifying trade data: bulk volume classification (BVC), Tick Rule and Aggregated Tick Rule. We develop a Bayesian model of inferring information from trade executions, and show the conditions...

We investigate the effect of ambiguity about hedge fund investment strategies on asset prices and aggregate welfare. We model some traders (mutual funds) as facing ambiguity about the equilibrium trading strategies of other traders (hedge funds). This ambiguity limits the ability of mutual funds...

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...

This paper investigates the linkage of microstructure, accounting, and asset pricing. We determine the relationship between firm characteristics as captured by accounting and market data and a firm's probability of private information-based trade (PIN) as estimated from trade data. This allows...

Execution traders know that market impact greatly depends on whether their orders lean with or against the market. We introduce the OEH model, which incorporates this fact when determining the optimal trading horizon for an order, an input required by many sophisticated execution strategies....

We investigate the role of information in affecting a firm's cost of capital. Using a multi-asset rational expectations model, we show that differences in the composition of information between public and private information affect the cost of capital, with investors demanding a higher return to...

In this research we investigate the role of information-based trading in affecting asset returns. Our premise is that in a dynamic market asset prices are continually adjusting to new information. This evolution dictates that the process by which asset prices become informationally efficient...