We study a microstructure model with non-strategic liquidity traders, Rock (1990) style value traders and possibly a strategic trader with private information. Traders optimize using market orders and schedules of price-contingent limit orders. Market depth in the different order types is...

This paper presents a microstructure model of liquidity provision in which a specialist with market power competes against a competitive limit order book. General solutions, comparative statics and examples are provided first with uninformative orders and then when order flows are informative....

This paper presents a microstructure model of liquidity provision in which a specialist with market power competes against a competitive limit order book. General solutions, comparative statistics and examples are provided first for markets with uninformative orders and then when order flows are...

We present a microstructure model of competition between exchanges for order flow based on liquidity provision. Different pairings of pure limit order markets (PLM) and hybrid specialist/limit order markets (HM) are considered. We find that neither a pure nor a hybrid market structure is...

How important are cross-stock common factors in the price discovery/liquidity provision process in equity markets? We investigate two aspects of this question for the thirty Dow stocks. First, using principal components and canonical correlation analyses we find that both returns and order flows...

How important are cross-stock common factors in the price discovery/liquidity provision process in equity markets? We investigate two aspects of this question for the thirty Dow stocks. First, using principal components and canonical correlation analyses we find that both returns and order flows...

Asset prices are risky, in part, because of uncertainty about the preferences of potential counterparties and the terms-of-trade at which they will be willing to provide liquidity in the future. We call such randomness liquidity risk. We argue that liquidity risk is an important source of...

This paper investigates the potential contribution of cash market price manipulation to an option's value. When the underlying's transaction price follows an exogeneous fundamental process plus a price impact component influenced by trade, both sides of an option position may try to move the...