Use of trading strategies to mislead other market participants, commonly termed market manipulation, has been identified as a major problem faced by present day stock markets. Although some mathematical models of market manipulation have been previously developed, this work presents a framework for manipulation in the context of a realistic computational model of a limit-order market. In this w...

Recently, stock exchanges have altered their trading fees to subsidize liquidity by offering “make” rebates for providing liquidity through limit orders and charging “take” fees for consuming liquidity via marketable orders, leading to debate regarding the impact of these fees on market quality. Using an exogenous experiment performed by NASDAQ in 2015, I employ difference-in-differences analys...

This paper examines the relation between political connections and informed trading by corporate insiders in the context of government intervention during the Financial Crisis. Consistent with politically connected insiders extracting rents from shareholders, we find strong evidence of a relation between political connections and informed trading by corporate insiders. We find that the relation...

Using cross-country data on trading by international mutual funds, I find that firms with more opaque information environments, as captured by firmand country-level measures of the availability of financial reporting information, experience more privately-informed trading by institutional investors. The association between firm-level opacity and informed trading is most pronounced where country...

Recent research has documented empirical evidence of informed trading ahead of major corporate events such as earnings announcements, mergers and acquisitions (M&A) and corporate bankruptcies. Surprisingly, however, no such evidence exists ahead of corporate divestiture or spinoff (SP) announcements. This is noteworthy because the parent company’s stock usually experiences a significant price j...

This paper analyzes how uncertainty about the number of informed traders in a market alters the market characteristics. Increasing the uncertainty about the number of informed traders while holding the expected number of informed traders constant: (i) increases the residual price uncertainty in the market; (ii) increases the total expected volume of informed trade and profits earned by insiders...

We examine the informational role of derivatives in price discovery in Taiwan. After controlling for market cycles, moneyness, and liquidity, we use three different methods to measure the information contents in different trading venues. We find that the trades on futures contribute the most to price discovery. The futures transactions, however, are also the most costly in executing information...

If short sellers can destroy firm value by manipulating prices down in a “bear raid,” an informed blockholder has a powerful natural incentive to protect the value of his stake by trading against them. However, he also has an incentive to use his information to generate trading profits. We show that these conflicting objectives create a multiplier effect, whereby the buying quantity needed to d...

While explicitly assuming that stock price conveys valuable information to the management, we show that the value loss from diversification is a function of the stock price informativeness. More informed stock trading leads to a more efficient investment and a smaller diversification discount. © 2007 Elsevier B.V. All rights reserved.