This paper employs a “transaction” data‐base to study whether observed quote‐revisions are consistent with those predicted by the adverse selection and inventory cost theories of the bid‐ask spread. We find that actual quote‐revisions are consistent with the theoretical prediction in only 25% of the cases. Furthermore, quote‐revision patterns are found to be strongly dependent on the level of the outstanding spread and, to a lesser extent, on the transaction size. These systematic patterns, unrelated to the inventory cost and adverse selection theories, are consistent with the effect on quote‐revisions of the limit order book and the minimum 1/8 price‐change rule.

This paper employs a “transaction” data-base to study whether observed quote-revisions are consistent with those predicted by the adverse selection and inventory cost theories of the bid-ask spread. We find that actual quote-revisions are consistent with the theoretical prediction in only 25% of the cases. Furthermore, quote-revision patterns are found to be strongly dependent on the level of the outstanding spread and, to a lesser extent, on the transaction size. These systematic patterns, unrelated to the inventory cost and adverse selection theories, are consistent with the effect on quote-revisions of the limit order book and the minimum 1/8 price-change rule.

This paper employs a "transaction" database to study whether observed quote revisions are consistent with those predicted by the adverse selection and inventory cost theories of the bid-ask spread. The authors find that actual quote revisions are consistent with the theoretical prediction in only 25 percent of the cases. Furthermore, quote-revision patterns are found to be strongly dependent on the level of the outstanding spread and, to a lesser extent, on the transaction size. These systematic patterns, unrelated to the inventory cost and adverse selection theories, are consistent with the effect on quote revisions of the limit order book and the minimum 1/8 price-change rule.

The informational role of strategic insider trading around corporate dividend announcements is studied based on the efficient equilibrium in a signaling model with endogenous insider trading. Insider trading immediately prior to the announcement of dividend initiations has significant explanatory power. For firms with insider selling prior to the dividend initiation announcement, the excess returns are negative and significantly lower than for the remaining firms (with no insider trading or just insider buying) as implied by the authors' model. Another implication is that dividend increases may elicit a positive or negative stock price response depending on the firm's investment opportunities.

This paper develops tests of unconditional mean-variance efficiency under weak distributional assumptions using a generalized method of moments framework. These tests are potentially more robust than commonly employed tests which rely on the assumption that asset returns are normally distributed and temporarily i.i.d. Using returns for size-based portfolios from 1926 to 1988, the authors show that the conclusion concerning the mean-variance efficiency of market indexes can be sensitive to the test considered.

After-hours pricing in foreign equity markets of multiple-listed U.S. securities appeared to be efficient in predicting New York prices in the weeks immediately following the October 1987 crash, but relatively uninformative in succeeding months. By contrast, daily changes in New York prices appear to be efficiently incorporated in after-hours trading on both the Tokyo and London exchanges throughout the sample period. This paper suggests that the asymmetry and temporal variations in cross-market correlations are consistent with rational investor behavior in equity markets with nonzero transaction costs and time-varying share price volatility.

This paper develops tests of unconditional mean‐variance efflciency under weak distributional assumptions using a Generalized Method of Moments framework. These tests are potentially more robust than commonly employed tests which rely on the assumption that asset returns are normally distributed and temporarily i.i.d. Using returns for size‐based portfolios from 1926 to 1988 we show that the conclusion concerning the mean‐variance effilciency of market indexes can be sensitive to the test considered.

The informational role of strategic insider trading around corporate dividend announcements is studied based on the efficient equilibrium in a signalling model with endogenous insider trading. Insider trading immediately prior to the announcement of dividend initiations has significant explanatory power. For firms with insider selling prior to the dividend initiation announcement, the excess returns are negative and significantly lower than for the remaining firms (with no insider trading or just insider buying) as implied by our model. Another implication is that dividend increases may elicit a positive or negative stock price response depending on the firm's investment opportunities.