Will arbitrage capital flow into markets experiencing shocks, mitigating adverse effects on price efficiency? Not necessarily. In a dynamic model with privately informed capital-constrained arbitrageurs, price efficiency plays a dual role, determining both the profitability of new arbitrage and the...

We study the optimal execution problem in a principal-agent setting. A client contracts to purchase from a dealer. The dealer hedges, buying from the market, creating temporary and permanent price impact. The client chooses a contract, which specifies payment as...

When seeking to trade in over-the-counter markets, institutional investors typically restrict both the number of potential counterparties they contact and the information they disclose (e.g., by requesting two-sided rather than one-sided quotes). We rationalize these important facts in a model...

We study liquidity supply in fragmented markets. Market makers intermediate heterogeneous order flows, trading off spread revenue against inventory costs. Applying our model to payment for order flow (PFOF), we demonstrate that portfolio-based considerations of inventory management incentivize market makers...

We study a noisy general rational expectations equilibrium in an economy with big trading data, populated by asymmetrically informed logarithmic investors. We show that the equilibrium can be either fully or partially revealing about macroeconomic shocks privately observed by informed...

How do resolution frameworks affect the private restructuring of distressed banks? We model a bank’s shareholders and creditors negotiating a restructuring, under two frictions: asymmetric information about asset quality, and externalities on the government. High-quality banks signal themselves by delaying...