We use the introduction of a fi nancial transaction tax (FTT) in France in 2012 to test competing theories on its impact. We find no support for the idea that an FTT improves market quality by a ffecting the composition of trading volume. Instead, our results are in line with the hypothesis that...

Garbade and Silber (1979) demonstrate that an asset will be liquid if it has (1) low price volatility and (2) a large number of public investors who trade it. Although these results match nicely with common notions of liquidity, one key element is missing: liquidity also depends on (3) an asset...

The use of computers to execute trades, often with very low latency, has increased over time, resulting in a variety of computer algorithms executing electronically targeted trading strategies at high speed. We describe the evolution of increasingly fast automated trading over the past decade...

In this study we examine intense episodic spikes in quoting activity (frequently referred to as quote stuffing) on market conditions. We find that quote stuffing is pervasive and that over 74% of U.S. exchange-listed securities experienced at least one episode during 2010. We also find that...

We use the introduction and subsequent removal of the flash order functionality from NASDAQ as a natural experiment to investigate the impact of voluntary disclosure of trading intent on market quality. We find that flash orders significantly improve liquidity in NASDAQ. Furthermore, overall...

Short lived arbitrage opportunities arise when prices adjust with a lag to new information. They are toxic because they expose dealers to the risk of trading at stale quotes. Hence, theory implies that more frequent toxic arbitrage opportunities and a faster arbitrageurs' response to these...

We show that the excessive use of hidden orders causes artificial price pressures and abnormal asset returns. Using a simple game-theoretical setting, we demonstrate that this effect naturally arises from mis-coordination in trading schedules between traders, when suppliers of liquidity do not...

This paper investigates increased liquidity provision by market makers resulting from their ability to reduce balance sheet encumbrance through the use of central counterparties (CCPs). The introduction of the Basel III leverage rule constitutes a shock to market makers’ balance sheets and...