Most equity market mechanisms have designated market makers who provide continuous liquidity. This is not the case on one of the largest and most active stock markets in the world: the Tokyo Stock Exchange (TSE). Its designated intermediaries are merely order clerks called saitori, who log limit...

This paper examines the value of debt subject to default risk in a continuous time framework. By considering debt with regular principal repayments (e.g. through a sinking fund), we are able to examine bonds with arbitrary maturity while retaining a time-homogeneous environment. This extends...

In its exposure draft, "Accounting for Stock-based Compensation," FASB proposes that either the Black-Scholes or binomial option pricing model be used to expense employee stock options, and that the value of these options be measured on their grant date with typically modest ex-post adjustment....

Bank capital rules which do not recognize audit costs, liquidation costs and portfolio diversification can seriously underestimate actuarially fair capital requirements. If depositors do not have access to low cost alternatives, the effect of higher requirements can be imposed on them....

This paper introduces a three-part transactions dataset to test various microstructural hypotheses about the spot foreign exchange market. In particular, we test for effects of trading volume on quoted prices through the two channels stressed in the literature: the information channel and the...

This paper addresses the issue of optimal transparency in a multiple-dealer market. In particular, we examine the question: Would risk-averse dealers prefer ex-ante that signed order flow were observable? We answer this question with the solution to a mechanism design problem. The resulting...

We develop a multi-period model of stock trading in which investors receive differential information concerning the underlying value of the stock. Investors trade competitively in the market based on their own private information and the information revealed by the market clearing prices as well...

The question of the economic functions of derivatives has been widely discussed in the financial economics literature. In this paper, I focus on the sources of economic efficiency gains from the use of derivatives. These sources include helping to complete capital markets, lowering transaction...