Liquidity
Working Paper
Costs and Benefits of Financial Conglomerate Affiliation: Evidence from Hedge Funds
This paper explores how affiliation to financial conglomerates affects asset managers’ access to capital, trading behavior, and performance. Focusing on a sample of hedge funds, we find that financial-conglomerate-affiliated hedge funds (FCAHFs)...Read more
Activism, Strategic Trading, and Liquidity
We analyze dynamic trading by an activist investor who can expend costly effort to affect firm value. We obtain the equilibrium in closed form for a general activism technology, including both binary and continuous outcomes. Variation in...Read more
The Dark Side of Liquidity Creation: Leverage and Systemic Risk
We consider a model in which the threat of bank liquidations by creditors as well as equity-based compensation incentives both discipline bankers, but with different consequences. Greater use of equity leads to lower ex ante bank liquidity,...Read more
Capital-Market Effects of Securities Regulation: Prior Conditions, Implementation, and Enforcement
This paper examines the economic effects of changes in securities regulation. We analyze two key directives in the European Union (EU) that tightened market abuse and transparency regulation. All EU member states were required to adopt these two...Read more
Liquidity and Governance
Is greater trading liquidity good or bad for corporate governance? We address this question both theoretically and empirically. We solve a model consisting of an optimal IPO followed by a dynamic Kyle market in which the large investor?s private...Read more
Mandatory IFRS Reporting and Changes in Enforcement
In recent years, reporting under International Financial Reporting Standards (IFRS) became mandatory in many countries. The capital-market effects around this change have been extensively studied, but their sources are not yet well understood....Read more
The Twilight Zone: OTC Regulatory Regimes and Market Quality
We analyze a comprehensive sample of more than 10,000 U.S. stocks in the OTC market. As little is known about this market, we first characterize OTC firms by trading venue and provide evidence on survival, success, frequency of venue changes,...Read more
The Future in Law and Finance
The success of a capitalist economy rests upon the ability of finance to sustain potentially
infinite growth, based on funding today the output of tomorrow. Finance, however, needs
rules. The aim of the law and finance scholarship is...Read more
The Value of Control and the Costs of Illiquidity
We develop a search model of block trades that values the illiquidity of controlling stakes. The model considers several dimensions of illiquidity. First, following a liquidity shock, the controlling blockholder is forced to sell, possibly to a...Read more
Why High Leverage is Optimal for Banks
Liquidity production is a central role of banks. When there is a market premium for the production of (socially valuable) liquid financial claims and no other departures from the Modigliani and Miller (1958, MM) assumptions, we show that high...Read more
The Effect of Liquidity on Governance
This paper studies the effect of stock liquidity on blockholder governance. Conditional upon acquiring a stake, liquidity reduces the likelihood that a blockholder governs through voice (intervention) – as shown by the greater propensity to file...Read more