Applying a technical analysis trading system based on the moving average crossover rule for companies listed on the Bucharest Stock Exchange does not produce significant profits, but leads to consistent excess returns and lower risk versus the benchmark buy and hold strategy for a potential...

In this thesis, I explore various aspects of market liquidity and analyze its effect on asset prices. First, in a model of a limit order market I explain how to define liquidity and derive a price impact function. Second, I show how agents who have price impact generate a liquidity component in...

Speed matters: we show that an investor's optimal trading strategy is significantly different when he observes news faster than others versus when he does not, holding the precision of his signals constant. When the investor has fast access to news, his trades are much more sensitive to news,...

We study both theoretically and empirically option prices on firms undergoing a cash merger offer. To estimate the merger's success probability, we use a Markov Chain Monte Carlo (MCMC) method using a state space representation of our model. Our estimated probability measure has significant...

Does a larger fraction of informed trading generate more illiquidity, as measured by the bid--ask spread? We answer this question in the negative in the context of a dynamic dealer market where the fundamental value follows a random walk, provided we consider the long run (stationary)...

We study the quoting activity of market makers in relation to trading, liquidity, and expected returns. Empirically, we find larger quote-to-trade (QT) ratios in small, illiquid or neglected firms, yet large QT ratios are associated with low expected returns. The last result is driven by quotes,...

When liquidity is measured by the bid-ask spread or price impact, markets with more trading activity are typically more liquid than markets with less trading activity. But showing a causal connection from trading activity to spreads is difficult because these variables are endogenous. In the...

How does informed trading affect liquidity in limit order markets, where traders can choose between market orders (demanding liquidity) and limit orders (providing liquidity)? In a dynamic model, informed trading overall helps liquidity: A higher share of informed traders (i) improves liquidity...

Methods of proving the Black-Scholes formula for the price of an European call option fall into two categories: the bond replication method (the original one by Black and Scholes), and the call replication method (originated by Merton). These two methods are not equivalent. While the call...

This paper presents a model of an order-driven market where fully strategic, symmetrically informed liquidity traders dynamically choose between limit and market orders, trading off execution price and waiting costs. In equilibrium the bid and ask prices depend only on the numbers of buy and...