A stationary stochastic process is defined to be locally independent if it eventually becomes independent of pastrealizations. I develop a simple nonparametric test for this condition. Size and power comparisons favor this statistic over the one proposed by Brock, Dechert and Scheinkman (1987)...

I investigate the linkage between liquidity provision by Nasdaq market makers and analysts in the same firm. Using three measures of market activity, I find that Nasdaq firms are more likely to provide buy side liquidity in anticipation of upgrades in the period 1999-2000. ECN activity supports...

Despite the widespread use of the GARCH model, the specification of the heteroscedasticity is essentially ad hoc. This paper's contribution is to develop a model of asset pricing and learning where GARCH disturbances evolve naturally out of the decision problem of economic agents. An empirical...

This paper assesses the microstructure of the U.S. Treasury securities market using tick data from the BrokerTec electronic trading platform. We examine trading activity, bid-ask spreads, and depth for the on-the-run 2-, 3-, 5-, 10- and 30-year securities and find that liquidity is markedly...

This paper examines a variety of methods for extracting implied probability distributions from option prices. I critically analyze and extend approaches suggested by Derman and Kani (1994), Rubinstein (1994) and Shimko (1993). I develop a new simulated method of moments estimation procedure. I...

We find that turnover rises on n-day highs and lows and is an increasing function of n. We offer several explanations from the technical and behavioral finance literature for why traders might use these signals. Turnover is persistent following these events, and new lows provide abnormal returns...

This paper assesses the contribution of monetary policy to bond returns volatility, assuming that the monetary authority controls the short-term nominal interest rate. We model exogenously the joint process for the aggregate endowment and the nominal interest rate, and we determine endogenously...

The Nasdaq stock market provides information about buying and selling interest in what is called the Level II display. Using a bivariate VAR model of trades and quotes, I assess the effect of Level II prices and depths on short-run quote dynamics. I also determine the influence of individual...

This paper documents the significant role of ECNs in forming the inside market in NASDAQ securities. We argue that the ECNs need to be exposed to market orders through the SOES system.

We estimate the intensity of choice parameter in heterogenous agent models in both a static and dynamic setting. Mean-variance optimizing agents choose among mutual funds of similar styles but varying performance. Actively managed funds have a lower Sharpe ratio than passive index funds, yet...