Microstructure noise in security prices biases the results of empirical asset pricing specifications, particularly when security-level explanatory variables are cross-sectionally correlated with the amount of noise. We focus on tests of whether measures of illiquidity, which are likely to be...

Electricity cannot be economically stored, leading to volatile spot prices and implying that standard cost-of-carry relations are not useful for pricing electricity forward contracts. We model spot and forward power markets, evaluating the demand for risk reduction and assessing equilibrium spot...

This study assesses the sensitivity of trading cost estimates to two methodological issues: the time adjustment made before comparing trades to quotes, and the procedure used to designate trades as buyer or seller-initiated. Consistent with recent research for Nasdaq stocks, the results indicate...

Bid-ask spreads and return volatility decline substantially following Exchange listing for firms that moved from Nasdaq to the NYSE during 1996 and 1997, with the largest reductions in volatility for firms with the largest reductions in spreads. This finding is inconsistent with the reasoning...

Trade execution costs remain larger on Nasdaq as compared to the NYSE in the wake of new SEC-mandated order-handling rules and reductions in tick sizes, but the differential across markets is smaller than in earlier years. Cross-sectional regression analysis indicates that the differences in...

The Samuelson hypothesis implies that the volatility of futures price changes increases as a contract's delivery date nears. In markets where the Samuelson hypothesis holds, accurate valuation of options and related derivatives on futures requires that a term structure of futures volatilities be...

This paper investigates relations between several measures of trade execution costs and price rounding practices for sets of NYSE and Nasdaq listed firms. Percentage execution costs on each exchange are found to be positively related to the rounding of transaction prices and quotes, both in the...

Quoted and effective bid-ask spreads on Nasdaq are two to four cents per share narrower, ceteris paribus, when stocks trade with a smaller tick size below $10 per share. There is no evidence of a reduction in liquidity with the smaller tick size. The largest spread reductions occur for stocks...