The authors find support for a negative relation between conditional expected monthly return and conditional variance of monthly return using a GARCH-M model modified by allowing (1) seasonal patterns in volatility, (2) positive and negative innovations to returns having different impacts on...

Under fairly general conditions, this article derives the equilibrium price schedule determined by the bids and offers in an open limit order book. The analysis shows that the order book has a small-trade positive bid-ask spread, and limit orders profit from small trades; the electronic exchange...

Trading on private information creates inefficiencies because there is less than optimal risk sharing. This occurs because the response of marketmakers to the existence of traders with private information is to reduce the liquidity of the market. The institution of the monopolist specialist may...

The bid-ask spread can be decomposed into two parts-one part due to asymmetric informat ion and the other part due to other factors such as monopoly power. T he part due to asymmetric information attenuates statistical biases i n mean return, variance, and serial covariance. Thus, using spread...