Quantum Theory of Securities Price Formation in Financial Markets

Securities Transaction Taxes for U.s. Financial Markets

This paper examines the viability of security transaction excise taxes (STETs) as one policy tool for promoting a more stable financial environment, specifically with respect to the U.S. economy. Contrary to a large recent critical literature, we show that a STET can be designed without creating large distortions between segments of the financial market. We also show that a modest STET for the ...

Basket Securities, Price Formation, and Informational Efficiency

This paper investigates the role of basket securities in the efficient price formation process of individual component securities. The study focuses on one type of basket security, exchange traded funds (ETFs), which includes some of the most actively traded securities in the U.S. equity market. A multi-asset variance decomposition methodology is developed to measure the information contributio...

The price formation of substitute markets: Theory and empirical application

Two related issues are seldom jointly addressed in the cross market price discovery literature: i) a model that focuses on non-price parameter, ii) testing a non-price parameter model against a price parameter model. We have two objectives in this paper. First, develop a joint trade direction model (JTDM) from the single market model in Madhavan, Richardson and Roomans (1997). Second, estimate ...

Modelling Price Pressure In Financial Markets

We present experimental evidence that security prices do not respond to pressure from their own excess demand, unlike traditionally assumed in economic theory. Instead, prices respond to excess demand of all securities, despite the absence of a direct link between markets. We propose a model of price pressure that explains these findings. In our model, agents set order prices that reflect the m...

New Special Study of the Securities Markets: Financial Intermediaries