This paper tests whether traders react more strongly as a series of similar earnings surprises continues, as predicted by several important behavioral finance models. We compile measures of buying and selling from NYSE TAQ data for a large ten-year sample. Results show strong, consistent, evidence that small traders exhibit an increasing reaction – with significant increases in reaction strengt...

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 tests the expectations hypothesis (EH) using US monthly data for bond yields spanning the 1952-2003 sample period and ranging in maturity from 1 month to 10 years. We apply the Lagrange multiplier test developed by Bekaert and Hodrick (2001) and extend it to increase the test power: (a) by introducing economic variables as conditioning information; and (b) by using more than two bond...

Using the intraday data on the Taiwan Stock Exchange (TWSE), we address the issue of the informativeness of the limit order book in the periodic call market. We find that the pre-call information variables, i.e., the market order and the radius of the limit order book, have significant impacts on the trade variables, i.e., the trading volume, the post-call bid-ask spread, and the trader surplus...

The question of how useful information in financial markets is has been discussed for decades and is still unresolved. In this paper we challenge the widely held belief that success and failure in the stock market can largely be attributed to the information underlying the trading decisions. We present a dynamic multi-period experimental financial market with asymmetrically informed traders who...

The incomplete information financial economic equilibrium (IIE) literature has been growing at a growing rate since its inception in the early nineteen eighties. This paper highlights, clarifies, and examines issues and concepts essential to this equilibrium. These include: the number of state variables, irrelevance of separation theorems, unobservable productivity processes that lead to comple...

Modeling financial volatility is an important part of empirical finance. This paper provides a literature review of the most relevant volatility models, with a particular focus on forecasting models. We firstly discuss the empirical foundations of different kinds of volatility. The paper, then, analyses the non-parametric measure of volatility, named realized variance, and its empirical applica...

We exploit the expiring nature of hedge fund lockups to create a dynamic, fund-level proxy of funding liquidity risk. In contrast to the prior literature, our measure allows us to identify how within-fund changes in funding liquidity risk are associated with performance and risk taking. Lockup funds with lower funding liquidity risk take more tail risk and have better risk-adjusted performance,...

We develop a multi-asset trading model to examine the closed-end fund discount. The model shows that the discount can arise if the quality of private information in the underlying assets is sufficiently better than in the fund. The model also indicates that a discount (premium) can arise if the excessive volatility of the fund dominates (is dominated by) the fund’s diversification benefit. More...

We propose a direct and robust method for quantifying the variance risk premium on financial assets. We show that the risk-neutral expected value of return variance, also known as the variance swap rate, is well approximated by the value of a particular portfolio of options.We propose to use the difference between the realized variance and this synthetic variance swap rate to quantify the varia...