We develop a dynamic model of an order-driven market populated by discretionary liquidity traders. These traders differ by their impatience and seek to minimize their trading costs by optimally choosing between market and limit orders. We characterize the equilibrium order placement strategies...

We develop a model in which the speed of reaction to trading opportunities is endogenous. Traders face a trade-off between the benefit of being first to seize a profit opportunity and the cost of attention required to be first to seize this opportunity. The model provides an explanation for...

We devel op a dynamic modelof anorder-drivenmarket populated bydiscretionary liquidity traders. These tradersmust trade, yet canchoose the type oforder and are fully strategic in their decision. Traders differ by their impatience: less patient traders are likely to demand liquidity, more patient...

Empirical evidence suggests that the distribution of earnings reports is discontinuous. This is puzzling since the distribution of true earnings is likely to be continuous. We present a model that rationalizes this phenomenon. In our model, managers report their earnings to rational investors,...

We present a rational model of earnings management. An informed manager, whose compensation is linked to the stock price, trades off the benefit of boosting the stock price by inflating the reported earnings against the costs of such manipulation. The investors rationally interpret his actions...

We argue that dividend stickiness, the tendency of managers to keep dividends unchanged, implies that managers use a partially pooling dividend policy. We offer a model that demonstrates how such a policy can evolve endogenously in equilibrium. An informed manager who cares about the firm's...

We prove the existence of an increasing equilibrium, and study the comparative statics of correlation in the k-double auction with affiliated private values. This is supposedly the simplest bilateral trading mechanism that allows for dependence in valuations between buyers and sellers. In the...

Previous evidence suggests that less liquid stocks entail higher average returns. Using NYSE data, we present evidence that both the sensitivity of returns to liquidity and liquidity premia have significantly declined over the past four decades to levels that we cannot statistically distinguish...

We prove the existence of an increasing equilibrium, and study the comparative statics of correlation in the k-double auction with affiliated private values. This is supposedly the simplest bilateral trading mechanism that allows for dependence in valuations between buyers and sellers. In the...

Previous evidence suggests that less liquid stocks entail higher average returns. Using NYSE data, we present evidence that both the sensitivity of returns to liquidity and liquidity premia have significantly declined over the past four decades to levels that we cannot statistically distinguish...