This paper analyzes models of securities markets with a single strategic informed trader and competitive market makers. In one version, uninformed trades arrive as a Brownian motion and market makers see only the order imbalance, as in Kyle (1985). In the other version, uninformed trades arrive as a Poisson process and market makers see individual trades. This is similar to the Glosten-Milgrom (1985) model, except that we allow the informed trader to optimize his times of trading. We show there is an equilibrium in the Glosten-Milgrom-type model in which the informed trader plays a mixed strategy (a point process with stochastic intensity). In this equilibrium, informed and uninformed trades arrive probabilistically, as Glosten and Milgrom assume. We study a sequence of such markets in which uninformed trades become smaller and arrive more frequently, approximating a Brownian motion. We show that the equilibria of the Glosten-Milgrom model converge to the equilibrium of the Kyle model. Copyright The Econometric Society 2004.

The NYSE has opened the limit-order book to off-exchange traders during trading hours. In this paper, we address the welfare implications of the recent change in market structure. We model a market similar to the single-price auction that the exchange uses to open the trading day. We consider two different environments. In the first, only the specialist can see the limit order book, while in the second the information in the book is available to all traders. We then compare equilibria. We find that traders who demand liquidity are better off when the book is open, while traders who supply liquidity (limit-order traders and the specialist) are better off when the book is closed. We also find that, on average, the opening price is more informative in the open book environment. The empirical implications with an open limit-order book are: 1) Opening prices are more informative; 2) Price impacts of market orders are smaller; and 3) The adverse-selection component of price impacts of market orders are larger.

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We develop a new model of multimarket trading to explain the differences in the foreign share of trading volume of internationally cross-listed stocks. The model predicts that the trading volume of a cross-listed stock is proportionally higher on the exchange in which the cross-listed asset returns have greater correlation with returns of other assets traded on that market. We find robust empirical support for this prediction using stock return and volume data on 251 non-U.S. stocks cross-listed on major U.S. exchanges. Copyright 2007 by The American Finance Association.