This paper combines the concept of market sidedness with excess option demand (changes in open interest) to solve the empirical challenge of separating directional from uninformed trading motives in widely available, unsigned options data. Our measure of options market sidedness persistently...

Classical option pricing theories are usually built on the law of one price, neglecting the impact of market liquidity that may contribute to significant bid-ask spreads. Within the framework of conic finance, we develop a stochastic liquidity model, extending the discrete-time constant...

Foreign exchange operates as a two-tiered over-the-counter (OTC) market dominatedby large, strategic dealers. Using proprietary high frequency data on quotesby the largest foreign exchange dealer banks in the dealer-to-customer (D2C) market,we find a significant heterogeneity in their behavior....

The recent crisis has demonstrated the close linkages between various asset classes within a country as well as the association between assets internationally. The aim of this research is to provide for a better understanding of some of these linkages by conducting an empirical investigation of...

We consider a stochastic optimization problem of maximizing the expected utility from terminal wealth in an illiquid market. A discrete time model is constructed with few additional state variables. The dynamic programming approach is then developed and used for numerical studies. No-arbitrage...

We advance the feedback/cash as ammunition hypothesis, namely that firms hold cash to address feedback from stock prices to cash ows and growth opportunities. Firms with more liquid stocks are expected to hold more cash, the opposite of the prediction from a standard information asymmetry...

We show that liquidity risk is priced in the cross section of returns on credit default swaps (CDSs). We measure CDS market illiquidity by aggregating deviations of credit index levels from their no-arbitrage values implied by the index constituents' CDS spreads, and we construct a tradable...

The paper investigates the relationship between the investment holding horizon and liquidity. I confirm and expand earlier findings on this issue: less liquid stocks are held by long term investors. Further, I find that stocks held for a short period carry more of liquidity risk. This means that...

In this paper, we consider block trading strategies and characterize the times when a block trade is a popular choice. We also study the economic relevance of optimal liquidation strategies by calibrating a recent and realistic microstructure model with data from the Paris Stock Exchange. We...

This paper presents the first comprehensive examination of liquidity in the global foreign exchange (FX) swap market. Our analysis employs effective measures that assess both the tightness and depth of the global market. We identify three main findings: First, FX swap liquidity is fragmented...