Abstract The costs of implementing investment strategies represent a significant drag on the performance of mutual funds and other institutional investors. It is the responsibility of institutional investors, and in the interests of the individual investors they represent, to seek market mechanisms that mitigate trading costs. We investigate an example of one such liquidity provision mechanism whereby liquidity demanders auction a set of trades as a package directly to potential liquidity providers. A critical feature of the auction is that the identities of the securities in the package are not revealed to the bidder. We demonstrate that this mechanism provides a transactions cost savings relative to more traditional trading mechanisms for the liquidity demander as well as an efficient way for liquidity suppliers to obtain order flow. We argue that the cost savings afforded this new mechanism are due to the potential for low cost crosses with the bidder's existing inventory positions and through the longer trading horizon, and superior trading ability, of the bidders. This research suggests that the ability to innovate via new liquidity provision mechanisms can provide market participants with transaction cost savings that cannot be easily duplicated on more traditional exchanges.

Abstract We examine the relation between the cost of debt financing and a governance index that contains various antitakeover and shareholder protection provisions. Using firm-level data from the Investors Research Responsibility Center for the period 1990–2000, we find that antitakeover governance provisions lower the cost of debt financing. Segmenting the data into firms with the strongest management rights (strongest antitakeover provisions) and firms with the strongest shareholder rights (weakest antitakeover provisions), we find that strong antitakeover provisions are associated with a lower cost of debt financing while weak antitakeover provisions are associated with a higher cost of debt financing, with a difference of about 34 basis points between the two groups. Overall, the results suggest that antitakeover governance provisions, although not beneficial to stockholders, are viewed favorably in the bond market.

Abstract This paper uses a volatility decomposition method to study the time-series behavior of equity volatility at the world, country, and local industry levels. Between 1974 and 2001, there is no noticeable long-term trend in any of the volatility measures. Then in the 1990s there is a sharp increase in local industry volatility compared to market and country volatility. Thus, correlations among local industries have declined. More assets are needed to achieve a given level of diversification, and there is more of a penalty for not being well diversified by industry. Local industry volatility leads the other volatility measures.

Abstract To learn about investors' information processing, we examine the issuances of trust preferred stock, a leverage-neutral hybrid security. Specific benefits of trust preferred stock issuance have become focal points for issuers. These focal benefits include tax and financial distress avoidance, for example. We find these benefits are associated with short-run stock price misreactions. For those issuers that do not have a focal issuance benefit, mean short-run abnormal returns tend to be negative but long-run abnormal returns tend to be positive. Unanticipated changes in long-run profit opportunities, not short-run operating profits, appear to be the key to the misreaction.