We study endogenous liquidity trading in a market with long-lived asymmetric information. We distinguish between public information, tractable information that can be acquired and intractable information that cannot be acquired. Besides information asymmetry and noise, the adverse-selection spread depends on the diffusion of intractable information and on the interest rate. With endogenous liqu...

We propose a dynamic econometric microstructure model of trading, and we investigate how the dynamics of trades and trade composition interact with the evolution of market liquidity, market depth, and order flow. We estimate a bivariate generalized autoregressive intensity process for the arrival rates of informed and uninformed trades for 16 actively traded stocks over 15 years of transaction ...

We study a model of informed trading in which trades arrive sequentially, uninformed trades arriving as a Poisson process. We characterize an equilibrium in which the single informed trader plays a mixed strategy – a point process with stochastic intensity. In this equilibrium, informed and uninformed trades arrive probabilistically, as they are assumed to do in Glosten-Milgrom models. We study...

During extreme financial crises, all of a sudden, the financial world that was once rife with profit opportunities for financial institutions (banks, for short) becomes exceedingly complex. Confusion and uncertainty follow, ravaging financial markets and triggering massive flight-to-quality episodes. In this paper we propose a model of this phenomenon. In our model, banks normally collect infor...

Using a unique daily database, we investigate the short-run dynamic relation between institutional trades and stock price volatility in an individual investor dominated emerging market. We document a significant negative volatility-institutional trading relation in the emerging Chinese market. This negative relation is more pronounced for unexpected institutional imbalance and buy. Institutiona...