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Working Paper
International Illiquidity
We build a parsimonious international asset pricing model in which deviations of government bond yields from a fitted yield curve of a country measure the tightness of investors' capital constraints. We compute these measures at daily frequency for six major markets and use them to test the model-predicted effect of funding conditions on asset prices internationally. Global illiquidity lowers the slope and increases the intercept of the international security market line. Local illiquidity helps explain the variation in alphas, Sharpe ratios, and the performance of betting-against-beta (BAB) ...
Working Paper
Microstructure Invariance in U.S. Stock Market Trades
This paper studies invariance relationships in tick-by-tick transaction data in the U.S. stock market. Over the 1993?2001 period, the estimated monthly regression coefficients of the log of trade arrival rate on the log of trading activity have an almost constant value of 0.666, strikingly close to the value of 2/3 predicted by the invariance hypothesis. Over the 2001?14 period, the estimated coefficients rise, and their average value is equal to 0.79, suggesting that the reduction in tick size in 2001 and the subsequent increase in algorithmic trading resulted in a more intense order ...