The "quant crisis" of 2007 and subsequent unfolding of the global financial crisis highlighted the importance of the "crowded-trade" problem (not being able to know how many others are taking the same position). To investigate the crowded trading, we present a model in which informed and...

Markets often experience liquidity deteriorations during financial crisis and improvements during reforms in trading rules. To explain these phenomena, we present a price formation model in which market makers are subject to ambiguity. When the market maker is sufficiently ambiguity averse, the...

This paper discusses the efficient market hypothesis and behavioral finance under a general framework using the literature of decision theories and information sciences. The focus is centered on the broad de nition of subjective rationality, the imprecision, and reliability of information. The...

We develop a parsimonious liquidity-adjusted downside capital asset pricing model to investigate if phenomena such as downward liquidity spirals and flights to liquidity impact expected asset returns. We find strong empirical support for the model. Downside liquidity risk (sensitivity of stock...

With the demise of traditional market makers and proliferation of trade execution algorithms that mix market and limit orders, it is no longer clear who provides liquidity in limit order book markets and what determines their liquidity provision decisions. To examine these issues, we develop and...

Despite the significant attention that market manipulation has received in recent years many aspects of it are poorly understood. This article identifies from the theoretical and empirical literature what we do and do not know about market manipulation, and suggests directions for future...