We examine nine changes in the New York State Security Transaction Taxes (STT) between 1932 and 1981. We find that imposing or increasing an STT results in wider bidask spreads, lower volume, and increased price impact of trades. In contrast to theories of STT imposition as a means to reduce...

This paper deals with the estimation of the risk-return trade-off. We use a MIDAS model for the conditional variance and allow for possible switches in the risk-return relation through a Markov-switching specification. We find strong evidence for regime changes in the risk-return relation. This...

This paper investigates high-frequency (HF) market and limit orders in the U.S. Treasury market around major macroeconomic news announcements. BrokerTec introduced i-Cross at the end of 2007 and we use this exogenous event as an instrument to analyze the impact of HF activities on liquidity and...

We propose a theory that jointly accounts for an asset illiquidity and for the asset price potential over-reliance on public information. We argue that, when trading frequencies differ across traders, asset prices reflect investors' Higher Order Expectations (HOEs) about the two factors that...

Understanding the nature of credit risk has important implications for financial stability. Since authorities—notably, central banks—focus on risks that have systemic implications, it is crucial to develop ways to measure these risks. The difficulty lies in finding reliable measures of...

The authors use the efficient hedging methodology for optimal pricing and hedging of equitylinked life insurance contracts whose payoff depends on the performance of several risky assets. In particular, they consider a policy that pays the maximum of the values of <em>n</em> risky assets at some maturity...

We investigate the dynamic of prices, information and expectations in a competitive, noisy, dynamic asset pricing equilibrium model. We look at the bias of prices as estimators of fundamental value in relation to traders' average expectations and note that prices are more (less) biased than...

This paper focuses on the impact that dispersion of opinions and asymmetric information have on turnover near releases of public information, using the probability of information-based trading (PIN) to proxy for information asymmetry and analysts' forecast dispersion for differences of opinion....

Understanding the nature of credit risk has important implications for financial stability. Since authorities notably, central banks focus on risks that have systemic implications, it is crucial to develop ways to measure these risks. The difficulty lies in finding reliable measures of aggregate...

This paper studies a dynamic version of the Holmstrom-Tirole model of intermediated finance. I show that competitive equilibria are not constrained efficient when the economy experiences a financial crisis. A pecuniary externality entails that banks’ desire to accumulate capital over time...