Substantial progress has been made in developing more realistic option pricing models. Empirically, however, it is not known whether and by how much each generalization improves option pricing and hedging. The authors fill this gap by first deriving an option model that allows volatility,...

This article studies the equilibrium valuation of foreign exchange contingent claims. Within a continuous-time Lucas (1982) two-country model, exchange rates, interest rates, and, in particular, factor risk prices are all endogenously and jointly determined. This guarantees the internal...

This paper studies Nasdaq market makers' activities during the one and one-half hour preopening period. Price discovery during the preopening is conducted via price signaling as opposed to the auction used to open the NYSE or the continuous market used during trading. In the absence of trades,...

This article tests for differences in execution costs among specialist firms for New York Stock Exchange listed securities. Execution cost differences provide a measure of the relative performance of specialist firms. The authors find a substantial difference in effective spreads and order...

This paper examines the relationship between book-to-market equity, distress risk, and stock returns. Among firms with the highest distress risk as proxied by Ohlson's (1980) O-score, the difference in returns between high and low book-to-market securities is more than twice as large as that in...

We study the daily and intradaily cross-sectional relation between stock returns and the trading of institutional and individual investors in Nasdaq 100 securities. Based on the previous day's stock return, the top performing decile of securities is 23.9% more likely to be bought in net by...

We examine whether macroeconomic risk can explain momentum profits internationally. Neither an unconditional model based on the Chen, Roll, and Ross (1986) factors nor a conditional forecasting model based on lagged instruments provides any evidence that macroeconomic risk variables can explain...