We clarify that the widely used estimation method for the LOT liquidity model in the market microstructure literature is improper in the sense of econometric inference. Based on an extensive simulation study and a real data analysis, we show that this method not only overestimates the true...

We consider second, third, fourth and fifth order stochastic dominance (SSD, TSD, FOSD and FISD, respectively) as well as decreasing absolute risk aversion (DARA) stochastic dominance (DSD). For comparison with DSD we also consider stochastic dominance (ESD) based on CARA utility functions....

Execution traders know that market impact greatly depends on whether their orders lean with or against the market. We introduce the OEH model, which incorporates this fact when determining the optimal trading horizon for an order, an input required by many sophisticated execution strategies....

In this study we examine different methodologies to estimate earnings. More specifically, we evaluate the viability of Genetic Programming as both a forecasting model estimator and a forecast-combining methodology. When we compare the performance of traditional mechanical forecasting (ARIMA)...

Several exchanges in futures and options deploy pro-rata matching. The executed size of limit orders in pro-rata markets is never certain, unlike in price-time priority matching systems. This article derives the optimal size of limit orders in pro-rata markets given the trader's desired...

Motivated by the problems of the conventional model in rationalizing market data, we derive the equilibrium interest rate and risk premiums using recursive utility in a continuous time model. We consider the version of recursive utility which gives the most unambiguous separation of risk...

When assets' expected returns follow a factor structure subject to pricing errors, we show that the mean-variance portfolio can be used to obtain a set of implied factor risk premia. Contrary to the instability of the mean-variance asset portfolio, we show that such implied factor risk premia...

Motivated by the problems of the conventional model in rationalizing market data, we derive the equilibrium interest rate and risk premiums using recursive utility in a continuous-time model. We use the stochastic maximum principle to analyze the model. This method uses forward/backward...