The presence of information asymmetry increases the probability that a potential predator will provide liquidity rather than engaging in predatory trading during liquidation by a distressed trader. More information asymmetry is associated with lower expected losses from liquidation for the distressed trader in illiquid markets. There is a negative correlation between the degree of information a...

In this paper we examine changes in dollar and relative bid-ask spreads of stocks following large price movements. We investigate large increases and decreases separately and link our results to current market microstructure theories on trading activities and spreads. We also look at changes in volume and selling pressure to interpret the changes in trading activity. Our results show that the m...

Several studies on Phase I of the Title IV SO2 Trading Program have found that actual compliance costs realized by the electric power industry have far exceeded the least-cost outcome in spite of allowance prices being much lower than expected. Prior work has either conjectured or shown that some of these excess costs could be a result of inefficiencies related to state regulatory constraints, ...

Background & Aims of the Study: Due to one-way flow of water in rivers Guilan, pollution trade theory and the system of Ratio-Trade (TRS) and Streeter - Phelps equation has been used. This system, with a view of the river self- purification and how the distribution and transport of pollutants, determined Ratio-Trade system (TRS) between the units and using this method offers optimal pat...

We use the HOS model of international trade to find a link between trading costs and pattern of trade, not just its effect on volume of trade. We prove that higher trading costs in labor-abundant countries will restrict volume of world trade by working against factor endowment bias and conversely for the capital-abundant nation. Asymmetric trading cost between goods may have paradoxical output ...

This study provides a unique use of abnormal profits from insider trading to measure a specific form of agency cost between outside shareholder and insiders—the agency cost of insider trading. Cross-sectional differences in the utilization of various bonding and monitoring mechanisms are examined to determine the relative effectiveness of alternative strategies in controlling such agency cost. ...

This paper develops a theory of investment and maturity choices and studies its implications for the macroeconomy. The novel ingredient is an explicit secondary market with trading frictions which leads to a liquidity spread which increases with maturity and generates an upward sloping yield curve. As a result, trading frictions induce firms to borrow and invest at shorter horizons than in a fr...

Financial markets perjorm many functions, but principal among them is to bring buyers and sellers together and provide a mechanism for price discove~. Information technology has had a number of significant impacts on financial markets, enabling enormous increases in volumes and more sophisticated trading techniques such as program trading and index arbitrage. Despite improvements, some large in...

We use a novel framework that integrates standard asset pricing and microstructure models to study how asymmetric information, imperfect competition among market makers, and risk aversion affect equilibrium illiquidity and asset pricing. All the main results are obtained in closed-form. In our model, market power, asymmetric information, and market-making cost drive market illiquidity. This mod...

This paper answers three questions related to the discrete nature of pollution abatement: (i) does a source's incremental control cost (as defined by the U.S. Environmental Protection Agency) necessarily exceed its average control cost, (ii) is incremental control cost a better approximation of a source's willingness to pay for abatement credits than average control cost, and (iii) exactly how ...