I use parametric and semiparametric methods to test for the order of integration in stock market indexes. The results, which are based on the EOE (Amsterdam), DAX (Frankfurt), Hang Seng (Hong Kong), FTSE100 (London), S&P500 (New York), CAC40 (Paris), Singapore All Shares, and the Japanese Nikkei, show that in almost all of the series the unit root hypothesis cannot be rejected. The Hang Seng an...

We study the relative risk of value and growth stocks. We find that time-varying risk goes in the right direction in explaining the value premium. Value betas tend to covary positively, and growth betas tend to covary negatively with the expected market risk premium. Our inference differs from that of previous studies because we sort betas on the expected market risk premium, instead of on the ...

Hedge funds have the most sophisticated risk management practices; however, hedge funds also appear to have a short lifetime relative to other managed funds. In this study, we investigate the failure probabilities of hedge funds—particularly the failures due to financial distress. We forecast the failure probabilities of hedge funds using both a proportional hazard model and a logistic model. B...

It has been widely debated how much nonsynchronous trading drives asymmetric portfolio cross-autocorrelations: lagged returns on a portfolio of larger-capitalization stocks are far more heavily correlated with current returns on a portfolio of smallercapitalization stocks than the converse. This paper proposes a new method to generate precise estimates of the extent to which nonsynchronous trad...

We analyze a game of persuasion which combines information acquisition and adverse selection. The sender can credibly transmit any information she gathers but cannot directly reveal her type to the receiver. Her payoff depends both on the news content and her perceived ability. We show that a sanitization equilibrium in which the sender reveals good news and conceals bad news prevails for mild ...

This study analyses the information diffusion between Chinese A shares (restricted to domestic investors) and B shares (restricted to foreign investors). The results show that there is an important long-run information diffusion between A and B shares. In the Shanghai stock market, information flows from foreign to domestic investors. However, in the smaller and less liquid Shenzhen stock marke...

We exploit a unique natural experiment – recent restrictions of dark trading in Canada – and proprietary trade-level data to analyze the effects of dark trading. Disaggregating two types of dark trading, we find that dark limit order markets are beneficial to market quality, reducing quoted, effective and realized spreads and increasing informational efficiency. In contrast, dark midpoint cross...

Recent research has documented that learning and evolution are capable of generating many well known features in financial times series. We extend the results of LeBaron & Yamamoto (2007) to explore the impact of varying amounts of imitation and agent learning in a simple order driven market. We show that in our framework, imitation is critical to the generation of long memory persistence in ma...

Financial markets reveal information through which firm managers increase the value of equity, e.g., by improving investment decisions. With debt, however, such decisions are not necessarily socially efficient. We demonstrate that investors’ endogenous information acquisition, acting through this feedback channel, attenuates risk-shifting but amplifies debt overhang. The most ex-ante inefficien...

A single-item ascending auction in which agents observe multidimensional Gaussian signals about their valuation of the good is studied. A class of equilibria is constructed in two steps: (i) the private signals of each agent are projected into a one-dimensional equilibrium statistic, and (ii) the equilibrium strategies are constructed “as if” each agent observed only his equilibrium statistic. ...