We study the impact of short-sale constraints on market prices and liquidity in imperfectly competitive markets in which market-makers have market power. We show that, with or without information asymmetry, short-sale constraints decrease bid prices, but increase bid-ask spreads and...

We propose a novel and tractable equilibrium model to study how information asymmetry, competition among market makers, and investors' risk aversion affect asset pricing, market illiquidity and welfare. The main innovation is that market makers compete through choosing simultaneously quantities...

Neoclassical financial models provide the foundation for our understanding of finance. This chapter introduces the main ideas of neoclassical finance in a single-period context that avoids the technical difficulties of continuous-time models, but preserves the principal intuitions of the...