[Using over 5,000 trades unequivocally based on nonpublic information about firm fundamentals, we find that asymmetric information proxies display abnormal values on days with informed trading. Volatility and volume are abnormally high, whereas illiquidity is low, in equity and option markets. Daily returns reflect the sign of private signals, but bidask spreads are lower when informed investors trade. Market makers’ learning under event uncertainty and limit orders help explain these findings. The cross-section of information duration indicates that traders select days with high uninformed volume. Evidence from the U.S. SEC Whistleblower Reward Program and the FINRA involvement addresses selection concerns.]

Abstract Using over 5,000 trades unequivocally based on nonpublic information about firm fundamentals, we find that asymmetric information proxies display abnormal values on days with informed trading. Volatility and volume are abnormally high, whereas illiquidity is low, in equity and option markets. Daily returns reflect the sign of private signals, but bid-ask spreads are lower when informed investors trade. Market makers’ learning under event uncertainty and limit orders help explain these findings. The cross-section of information duration indicates that traders select days with high uninformed volume. Evidence from the U.S. SEC Whistleblower Reward Program and the FINRA involvement addresses selection concerns. Received January 11, 2017; editorial decision December 17, 2018 by Editor Andrew Karolyi. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Abstract Stock return volatility during the Great Depression has been labeled a “volatility puzzle” because the standard deviation of stock returns was 2 to 3 times higher than any other period in American history. We investigate this puzzle using a new series of building permits and leverage. Our results suggest that volatility in building permit growth and financial leverage largely explain the high level of stock volatility during the Great Depression. Markets factored in the possibility of a forthcoming economic disaster. Received September 30, 2017; editorial decision August 27, 2018 by Editor Philip E. Strahan. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online

We develop a model of government portfolio choice in which the government chooses the scale of risky projects in the presence of market failures and tax distortions. These frictions motivate the government to manage social risk and fiscal risk. Social risk management favors programs that ameliorate market failures in bad times. Fiscal risk management makes unattractive programs involving large government outlays when other government programs also require large outlays. These two risk management motives often conflict. Using the model, we explore how the attractiveness of different financial stability programs varies with the government’s fiscal burden and characteristics of the economy. Received December 19, 2016; editorial decision June 28, 2018 by Editor Itay Goldstein. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.