In efficient markets, security prices move in response to the release of new information. Since transactions contain information, trading itself causes traders and market makers to update their beliefs and prices to be revised. The main part of this thesis (Chapters 2, 3, and 4) is devoted to the empirical investigation of how stock prices are updated in response to (large) trades, using tick-by-tick data distributed by the New York Stock Exchange. We show that market activity and trading volume are important determinants of the impact of trades on prices. Moreover, we show that there are large differences in price impact and price dynamics between frequently and infrequently traded stocks. In the final chapter of this dissertation (Chapter 5) we examine empirically the existence of comovements in the trading intensities of stocks of US department-store operators. We find significant comovements in the trading intensities of the stocks in this type of industry, which we explain by distinguishing idiosyncratic stock-specific news that applies to one stock only and sector-specific news that is potentially relevant for stocks in the same type of industry.
