Research

Abstract: Over 20% of U.S. options volume trades on physical floors, almost exclusively in S&P 500 index options. We exploit the COVID-19 closure of the Cboe floor to identify the impact of floor trading. The floor attracts complex trades, particularly the riskiest trades. During the closure, Cboe activated electronic auctions to execute complex orders. When electronic auctions were withdrawn, the cost of complex trades triples, while costs for simple trades are mostly unchanged. During the closure, the riskiest trades become much less prevalent. The floor facilitates the most difficult trades, but raises the cost of less difficult ones. 

Abstract: This paper studies the optimal length of an FX benchmark fixing window. A client trades with a dealer at a benchmark calculated over a specified time window, while the dealer hedges before and during the fix. A longer window dilutes transient price impact of dealer trades and reduces execution costs, but increases client transaction cost risk and dealer tracking risk, which is passed back to the client through competitive participation fees. Balancing these effects generates a finite, interior client-optimal window, including when the dealer chooses its execution strategy endogenously. The framework is extended to four objectives of benchmark design: client transaction costs, dealer risk-adjusted utility, benchmark representativeness, and benchmark attainability, and combined in a benchmark-administrator objective. Calibrating the model to GBP/USD and AUD/USD tick data shows that optimal window length varies with market conditions and currency characteristics, with longer windows favoured when transient impact is high and shorter windows when volatility is elevated. Across objectives, market states, and currencies, the industry-standard five-minute window emerges as a robust compromise.

Abstract: We study whether concentrating order flow in fragmented bond markets improves market quality. Centralisation concentrates order flow on designated venues and improves public information efficiency by 4.3 percentage points for treated bonds. The improvement is driven primarily by stronger cross-venue price synchronization, while variance ratios and autocorrelation also indicate more efficient pricing. Price impact results are mixed, suggesting that market-design interventions can improve information incorporation while generating transition costs as liquidity reallocates across venues. The results show that centralising a decentralised bond market does some good: it improves public price discovery, but not without frictions.

Abstract: We study how an interstate war affects equity market functioning using the Russian invasion of Ukraine as a precisely timed shock. Using millisecond-level trades and quotes, we show that liquidity deteriorates sharply and disproportionately for firms headquartered closer to the conflict. Markets do not anticipate the exact timing of the invasion. Abnormal quoted spreads for nearby and distant firms are near zero in the closing hours of the days before, but at the market open following the invasion, quoted spreads for nearby firms jump by about 0.6 standard deviations. In difference-in-differences estimates, first-degree neighbors experience higher quoted and effective spreads, and trading activity. Continuous distance measures show even larger effects, with spreads increasing by 16-24 bp and trading intensity by 25-37% for more exposed firms. By contrast, war-induced price changes and firm-specific volatility explain little of the liquidity response.

Abstract: We study how fee pricing and allocation rules affect market quality in decentralized payment systems. Using Ethereum's transition from first-price to uniform-fee pricing (EIP-1559) as a natural experiment and Bitcoin as a control in a difference-in-differences design, we find that algorithmic fee and elastic allocation mechanisms reduce fee volatility but increase fee dispersion and inflation, with average transaction costs rising by approximately 120%. Tips paid to miners fell by about one third, yet miner per-transaction payoffs rose by about 75%. On the welfare side, confirmed transactions on Ethereum declined by 22% relative to Bitcoin, dollar value settled on-chain dropped by 40%, smart-contract deployment fell by nearly half, and network congestion dropped by 44%. A placebo test using Ethereum's Merge to Proof-of-Stake produces no comparable discontinuities. Replacing the problematic first-price auction with a uniform posted fee traded lower price uncertainty for greater rent extraction and reduced aggregate network welfare.