The model of rational decision-making in most of economics and statistics is expected utility theory (EU) axiomatised by von Neumann and Morgenstern, Savage and others. This is less the case however in financial economics and mathematical finance, where investment decisions are commonly based on...

This study provides new evidence regarding the effect of limit order book disclosure on trading behavior. The natural experiment affected by the Sydney Futures Exchange in January 2001, when it increased limit order book disclosure from depth at the best bid and ask prices to depth at the three...

In Australia, access tariffs (rental charges) paid by third party users to the owners of energy transmission assets (e.g., gas pipelines) are determined by regulators on the basis of their depreciated optimized replacement cost (known as DORC). Reliance on the replacement cost, rather than...

The properties of information, including "information uncertainty", can be understood only Bayesianly. Common formulations that define information uncertainty in terms of just statistical "precision" (i.e. sampling variance), or any one estimator characteristic (e.g. bias), are inadequate for...

The probability of informed trading (PIN) is used widely as a measure of information asymmetry. Relatively little work has appeared on how well PIN models fit empirical trade data. We reveal structural limitations in PIN models by examining their marginal distributions and dependence structures...

The probability of informed trading (PIN) is a commonly used market microstructure measure for detecting the level of information asymmetry. Estimating PIN can be problematic due to corner solutions, local maxima and floating point exceptions (FPE). Yan and Zhang (2012) show that whilst...

Before information φ arrives, market observers must be uncertain whether the stock price conditioned on φ will be higher or lower than the current price. Otherwise there is an obvious arbitrage opportunity. By assuming this minimal condition of efficient markets, it is shown under the...

The term "information risk" or "information uncertainty" is defined as the risk of a misleading signal. This risk is understood Bayesianly in terms of the likelihood function f(S|φ). In Bayesian method, f(S|φ) captures the quality of signal S with respect to parameter φ. The Bayesian position...

Investors are said to "abhor uncertainty", but if there were no uncertainty they could earn only the risk-free rate. A fundamental result in the analytical accounting literature shows that investors buying into a CARA-normal CAPM market pay lower asset prices, earn higher expected returns, and...

If two investments have the same payoff covariance with the market but one has higher expected payoff, which asset according to the CAPM has most risk? One answer is that as far as risk goes the two assets are the same, because they have the same covariance with the market. The correct answer,...