In many security markets, dealers trade with their regular clients at a discount relative to prevailing bid and ask quotes. In this article we provide an explanation to this phenomenon. We consider a dealer and an investor engaged in a long-term relationship. The dealer assigns a reputational...

We survey the literature analysing the price formation and trading process, and the consequences of market organization for price discovery and welfare. We develop a united perspective on theoretical, empirical and experimental approaches. We discuss the evidence on transaction costs and the...

The paper analyses the effects of strategic behaviour by an insider in a price discovery process, akin to an information tâtonnement, in the presence of a competitive informed sector. Such processes are used in the pre-opening period of continuous trading systems in several exchanges. It is...

Recent takeover activity has been characterized by broader participation in acquiror financing on both debt and equity sides. We focus on private equity buyouts, and investigate whether the number of financing participants is related to the likelihood of insider trading prior to the bid...

We analyze the reliability of voluntary disclosures of financial information, focusing on widely-employed publicly available hedge fund databases. Tracking changes to statements of historical performance recorded at different points in time between 2007 and 2011, we find that historical returns...

We study a general static noisy rational expectations model, where investors have private information about asset payo¤s, with common and private components, and about their own exposure to an aggregate risk factor, and derive conditions for existence and uniqueness (or multiplicity) of...

We compare competitive equilibrium outcomes with and without trading by a privately informed 'monopolistic' insider, in a model with real investment portfolio choices ex ante, and noise trading generated by aggregate uncertainty regarding other agents' intertemporal consumption preferences. The...

With only minimal restrictions on security payoffs and trader preferences, noisy aggregation of heterogeneous information drives a systematic wedge between the impact of fundamentals on the price of a security, and the corresponding impact on cash flow expectations. From an ex ante perspective,...

We present a model of quantitative trading as an automated system under human supervision. Contrary to previous literature we show that price-contingent trading is the profitable equilibrium strategy of large rational agents in efficient markets. The key ingredient is uncertainty about whether a...

Survey respondents strongly disagree about return risks and, increasingly, macroeconomic uncertainty. This may have contributed to higher asset prices through increased use of collateralisation, which allows risk-neutral investors to realise perceived gains from trade. Investors with lower risk...