The authors of this article present convincing evidence that opening prices differ from closing prices. Their major empirical finding is that returns that are measured from the opening of the market to the next open have higher variance than returns measured from the close of trade to the next close. This result is also found in Amihud and Mendelson (1987), but this article improves on the Amihud-Mendelson study by using a larger sample and by conducting a number of other tests. What is special about opening prices? The authors argue that the higher volatility of open-to-open returns is due to the strategic behavior of the specialist. The specialist sets the opening price in the call auction market that occurs at the open and is allowed to trade from his own account at this price. The authors suggest that in exploiting his monopoly position, the specialist increases the effective bid-ask...

Journal Article Foundations for Financial Economics Get access Foundations for Financial Economics. Chi-fu Huang and Robert H. Litzenberger. New York: North Holland, 1988. 365 pp. ISBN 0-444-01310-5. Paul Pfleiderer Paul Pfleiderer Stanford University Search for other works by this author on: Oxford Academic Google Scholar The Review of Financial Studies, Volume 1, Issue 4, October 1988, Pages 447–449, https://doi.org/10.1093/rfs/1.4.447 Published: 14 March 2015

[We examine whether a large shareholder can alleviate conflicts of interest between managers and shareholders through the credible threat of exit on the basis of private information. In our model, the threat of exit often reduces agency costs, but additional private information need not enhance the effectiveness of the mechanism. Moreover, the threat of exit can produce quite different effects depending on whether the agency problem involves desirable or undesirable actions from shareholders' perspective. Our results are consistent with empirical findings on the interaction between managers and minority large shareholders and have further empirical implications.]

We analyze a model of voluntary disclosure by firms and the desirability of disclosure regulation. In our model disclosure is costly, it has private and social value, and its precision is endogenous. We show that (i) a convexity in the value of disclosure can lead to a discontinuity in the disclosure policy; (ii) the Nash equilibrium of a voluntary disclosure game is often socially inefficient; (iii) regulation that requires a minimal precision level sometimes but not always improves welfare; (iii) the same is true for subsidies that change the perceived cost of disclosures; and (iv) neither regulation method dominates the other.

[In this article, we consider the possibility that some liquidity traders preannounce the size of their orders, a practice that has come to be known as "sunshine trading." Two possible effects preannouncement might have on the equilibrium are examined. First, since it identifies certain trades as informationless, preannouncement changes the nature of any informational asymmetries in the market. Second, preannouncement can coordinate the supply and demand of liquidity in the market. We show that preannouncement typically reduces the trading costs of those who preannounce, but its effects on the trading costs and welfare of other traders are ambiguous. We also examine the implications of preannouncement for the distribution of prices and the amount of information that prices reveal.]

In this article, we consider the possibility that some liquidity traders preannounce the size of their orders, a practice that has come to be known as “sunshine trading”. Two possible effects preannouncement might have on the equilibrium are examined. First, since it identifies certain trades as informationless, preannouncement changes the nature of any informational asymmetries in the market. Second, preannouncement can coordinate the supply and demand of liquidity in the market. We show that preannouncement typically reduces the trading costs of those who preannounce, but its effects on the trading costs and welfare of other traders are ambiguous. We also examine the implications of preannouncement for the distribution of prices and the amount of information that prices reveal.

[This article develops a model in which patterns in buy and sell volume, order imbalances, and expected price changes arise endogenously. The model covers cases in which the market maker is competitive and is a monopolist. Our results provide an explanation for the existence of patterns in mean returns within the trading day and across trading days.]

[This article develops a theory in which concentrated-trading patterns arise endogenously as a result of the strategic behavior of liquidity traders and informed traders. Our results provide a partial explanation for some of the recent empirical findings concerning the patterns of volume and price variability in intraday transaction data.]