Block trading and information revelation around quarterly earnings announcements

I investigate the empirical importance of information revelationin the pricing of block trades. In particular, I examine whetherblock prices are correlated with the unexpected part of firms'quarterly earnings. For my sample of block trades, informationrevelation does indeed appear to be a significant factor shortlybefore earnings announcements.     

Equilibrium Forward Curves for Commodities

We develop an equilibrium model of the term structure of forward prices for storable commodities. As a consequence of a nonnegativity constraint on inventory, the spot commodity has an embedded timing option that is absent in forward contracts. This option's value changes over time due to both endogenous inventory and exogenous transitory shocks to supply and demand. Our model makes predictions about volatilities of forward prices at different horizons and shows how conditional violations of the 'Samuelson effect' occur. We extend the model to incorporate a permanent second factor and calibrate the model to crude oil futures data.     

Liquidity provision with limit orders and a strategic specialist

This article presents a microstructure model of liquidity provisionin which a specialist with market power competes against a competitivelimit order book. General solutions, comparative statics andexamples are provided first with un-informative orders and thenwhen order flows are informative. The model is also used toaddress two optimal market design issues. The first is the effectof 'tick' size - for example, eighths versus decimal pricing- on market liquidity. Institutions trading large blocks havea larger optimal tick size than small retail investors, butboth prefer a tick size strictly greater than zero. Second,a hybrid specialist/limit order market (like the NYSE) providesbetter liquidity to small retail and institutional trades, buta pure limit order market (like the Paris Bourse) may offerbetter liquidity on mid-size orders.     

Liquidity-Based Competition for Order Flow

We present a microstructure model of competition for order flowbetween exchanges based on liquidity provision. We find thatneither a pure limit order market (PLM) nor a hybrid specialist/limitorder market (HM) structure is competition-proof. A PLM canalways be supported in equilibrium as the dominant market (i.e.,where the hybrid limit book is empty), but an HM can also besupported, for some market parameterizations, as the dominantmarket. We also show the possible coexistence of competing markets.Order preferencing—that is, decisions about where ordersare routed when investors are indifferent—is a key determinantof market viability. Welfare comparisons show that competitionbetween exchanges can increase as well as reduce the cost ofliquidity.     

Price impact in Nash equilibria

Finance and Stochastics - We prove global existence of a continuous-time Nash equilibrium with endogenous persistent and exogenous temporary price impact. Relative to the analogous Radner and...