Responding to a September 2002 regulatory enforcement, the Island electronic communications network stopped displaying its limit order book in the three most active exchange-traded funds (ETFs) where it was the dominant venue. Island's share of trading activity and price discovery fell, fragmenting the market. ETF prices adjust more slowly when Island goes dark, and there is substantial price discovery movement from ETFs to the futures market. Trading costs increase on Island and decrease off Island, with higher trading costs overall. When Island later redisplays its orders, market quality improves, with transparency and the reduction in fragmentation both playing important roles.

The authors test whether the reaction of international stock markets to oil shocks can be justified by current and future changes in real cash flows and/or changes in expected returns. They find that, in the postwar period, the reaction of U.S. and Canadian stock prices to oil shocks can be completely accounted for by the impact of these shocks on real cash flows alone. In contrast, in both the United Kingdom and Japan, innovations in oil prices appear to cause larger changes in stock prices than can be justified by subsequent changes in real cash flows or by changing expected returns.

[In September 2008, the U.S. Securities and Exchange Commission (SEC) temporarily banned most short sales in nearly 1,000 financial stocks. We examine the ban's effect on market quality, shorting activity, the aggressiveness of short sellers, and stock prices. The ban's effects are concentrated in larger stocks; there is little effect on firms in the lower half of the size distribution. Although shorting activity drops by about 77% in large-cap stocks, stock prices appear unaffected by the ban. All but the smallest quartile of firms subject to the ban suffer a severe degradation in market quality.]

Since 2012, all European Union countries have required disclosure of large short positions. This reduces short interest, bid-ask spreads, and the informativeness of prices. After specific disclosures, short-run abnormal returns are insignificantly negative, but 90-day cumulative abnormal returns are a statistically significant −5.23%. We find disclosures are likely to be followed by other disclosures, especially when the initial discloser is large or centrally located. However, there is no subsequent increase in short interest, and prices do not subsequently reverse. These results indicate that large short sellers are well informed, and that disclosures are not being used to coordinate manipulative attacks.

[This paper demonstrates how the principal-agent problem between venture capitalists and their investors (limited partners) causes limited partner returns to depend on diversifiable risk. Our theory shows why the need for investors to motivate VCs alters the negotiations between VCs and entrepreneurs and changes how new firms are priced. The three-way interaction rationalizes the use of high discount rates by VCs and predicts a correlation between total risk and net of fee investor returns. We take our theory to a unique data set and find empirical support for the effect of the principal-agent problem on equilibrium private equity asset prices.]

[We show that the positive volatility-volume relation documented by numerous researchers actually reflects the positive relation between volatility and the number of transactions. Thus, it is the occurrence of transactions per se, and not their size, that generates volatility; trade size has no information beyond that contained in the frequency of transactions. Our results suggest that theoretical research needs to entertain scenarios in which (i) both the frequency and size of trades are endogenously determined, yet (ii) the size of trades has no information content beyond that contained in the number of transactions.]

Stocks can be overpriced when short-sale constraints bind. We study the costs of short-selling equities from 1926 to 1933, using the publicly observable market for borrowing stock. Some stocks are sometimes expensive to short, and it appears that stocks enter the borrowing market when shorting demand is high. We find that stocks that are expensive to short or which enter the borrowing market have high valuations and low subsequent returns, consistent with the overpricing hypothesis. Size-adjusted returns are 1–2% lower per month for new entrants, and despite high costs it is profitable to short them.

We compare institutional execution costs across the major U.S. exchanges using a sample of institutional equity orders in firms that switch exchanges. Execution costs including commissions are essentially indistinguishable across these exchanges. We also find the fraction of trading volume from momentum traders is greater on the NYSE than either the Nasdaq or AMEX and that orders are more likely to be worked by an institution's trading desk on the NYSE than on the Nasdaq. These results suggest that institutions actively manage execution strategies, taking into account characteristics of the markets in which they trade.