We find that approximately 30% of financial advisers in the United States are involved in misconduct, yet only about one-third of those are detected. Advisers involved in misconduct tend to be male, work in a "toxic" environment, change firms more often, pass fewer industry exams, and have less...

Decentralized exchanges (DEXs) are gaining popularity, allowing investors to trade cryptocurrencies through liquidity pools. We find that about 44% of major DEX liquidity pools are scams, resulting in approximately $1.5 billion in investor losses. Scammers display specific traits, including...

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...

The "quant crisis" of 2007 and subsequent unfolding of the global financial crisis highlighted the importance of the "crowded-trade" problem (not being able to know how many others are taking the same position). To investigate the crowded trading, we present a model in which informed and...

This paper discusses the efficient market hypothesis and behavioral finance under a general framework using the literature of decision theories and information sciences. The focus is centered on the broad de nition of subjective rationality, the imprecision, and reliability of information. The...

Markets often experience liquidity deteriorations during financial crisis and improvements during reforms in trading rules. To explain these phenomena, we present a price formation model in which market makers are subject to ambiguity. When the market maker is sufficiently ambiguity averse, the...

The increased prevalence of algorithmic trading (AT) has an economically meaningful positive effect on the sensitivity of corporate investment to stock prices. The effect is pervasive in that the positive impact of AT on the investment-to-price sensitivity holds in even stocks with relatively...