Contents -- Preface to Volume 3 -- Introduction to Volume 3 Ivan E. Brick, Tavy Ronen -- List of Contributors -- Section I - Economics of Limit Orders -- Chapter 1 Discriminatory Limit Order Books, Uniform Price Clearing and Optimality Lawrence R. Glosten -- 1. Introduction -- 2. The Economic Setting -- 3. OptimumTerms of Trade -- 4. Discriminatory CLOB and Uniform Price Clearing -- 4.1. CLOB -- 4.2. Uniform price clearing -- 4.3. Welfare analysis -- 5. Discussion -- 6. Conclusion -- Acknowledgments -- References -- Chapter 2 Electronic Limit Order Books and Market Resiliency: Theory, Evidence, and Practice Mark Coppejans, Ian Domowitz, Ananth Madhavan -- 1. Introduction -- 2. Theory -- 2.1. Model framework -- 2.2. Liquidity dynamics -- 3. Empirical Results -- 3.1. Institutional details -- 3.2. Data -- 3.3. Liquidity metrics -- 3.4. Realized price impact costs -- 4. Dynamics of Liquidity -- 4.1. Identification -- 4.2. Specification and estimation of market liquidity dynamics -- 4.3. Impulse response functions -- 4.4. The dynamic relationship between liquidity and volatility -- 5. Practical Issues -- 5.1. Institutional trading -- 5.2. Optimal trading strategies -- 5.3. Market structure, trading protocols, and resiliency -- 6. Conclusion -- Acknowledgments -- References -- Chapter 3 Notes for a Contingent Claims Theory of Limit Order Markets Bruce N. Lehmann -- 1. Introduction -- 2. Limit Orders as Order Flow Derivatives -- 3. Limit Order Valuation and Order Flow Bets -- 4. Limit Order Book Dynamics -- 5. Conclusion -- Acknowledgments -- References -- Chapter 4 The Option Value of the Limit Order Book Alex Frino, Elvis Jarnecic, Thomas H. McInish -- 1. Introduction -- 2. The ASX Market Structure -- 3. Data and Methodology -- 3.1. Databases and sample selection -- 3.2. Reconstruction of the limit order schedule.

3.3. Calculation of variables and the option value of a limit order -- 3.4. The limit order schedule and its option value -- 4. Empirical Results -- 4.1. An intraday examination of the limit order schedule -- 4.2. Robustness of results across size of stocks and time periods -- 5. Summary and Conclusions -- Acknowledgments -- References -- Section II - Essays on Liquidity of Markets -- Chapter 5 The Cross Section of Daily Variation in Liquidity Tarun Chordia, Lakshmanan Shivakumar, Avanidhar Subrahmanyam -- 1. Data -- 1.1. Inclusion requirements -- 1.2. Summary statistics -- 2. The Relation Between Liquidity and Stock Volatility -- 2.1. Theoretical background -- 2.2. Empirical analysis -- 2.2.1. Time-series regressions -- 2.2.2. Cross-sectional determinants of the response of liquidity to absolute returns -- 2.2.3. Robustness checks -- 3. Conclusion -- Acknowledgments -- References -- Chapter 6 Intraday Volatility on the NYSE and NASDAQ Daniel G.Weaver -- 1. Introduction -- 2. Sample and Methodology -- 3. Results -- 4. Conclusion -- Acknowledgments -- References -- Chapter 7 The Intraday Probability of Informed Trading on the NYSE Michael A. Goldstein, Bonnie F. Van Ness, Robert A. Van Ness -- 1. Introduction -- 2. Probability of Informed Trading Model -- 3. Data -- 4. Intraday Results -- 5. Factors that Might Affect the Overall Probability Informed Trading -- 5.1. Spread -- 5.2. Price -- 5.3. Trading activity, order flow, and regional exchanges -- 5.4. Trade size -- 5.5. Risk -- 6. Conclusion -- References -- Chapter 8 Leases, Seats, and Spreads: The Determinants of the Returns to Leasing a NYSE Seat Thomas O. Miller, Michael S. Pagano -- 1. Introduction -- 2. Relevant Literature -- 3. An Empirical Model of Returns on Leasing NYSE Seats -- 4. Sample -- 5. Empirical Results -- 5.1. Summary statistics.

5.2. Historical trends in leasing returns and seat prices -- 5.3. Empirical tests of the partial adjustment model of NYSE seat leasing returns -- 6. Conclusion -- Acknowledgments -- References -- Chapter 9 Decimalization and Market Quality Robin K. Chou,Wan-Chen Lee -- 1. Introduction -- 2. Data -- 3. Research Methodology -- 3.1. Spreads -- 3.2. Depth -- 3.3. Trading activities -- 3.4. Clustering -- 3.5. Front-running -- 3.6. Multivariate regression test -- 4. Empirical Results -- 4.1. Spreads and depth -- 4.2. Trading activities -- 4.3. Clustering -- 4.4. Front-running -- 4.5. A closer look at decimalization -- 5. Conclusions -- Acknowledgments -- References -- Section III - Market Rationality -- Chapter 10 The Importance of Being Conservative: An Illustration of Natural Selection in a Futures Market GuoYing Luo -- 1. Introduction -- 2. The Model -- 3. The Simulation Model -- 4. Conclusion -- References -- Chapter 11 Speculative Non-Fundamental Components in Mature Stock Markets: Do they Exist and are they Related? Ramaprasad Bhar, A. G. Malliaris -- 1. Introduction -- 2. Rational Asset Bubbles -- 3. Review of Key Empirical Papers -- 3.1. Flood and Garber (1980) -- 3.2. West (1987) -- 3.3. Ikeda and Shibata (1992) -- 3.4. Wu (1997) -- 3.5. Wu (1995) -- 4. Global Stock Market Integration -- 5. Our Methodological Contribution -- 6. Dynamic Linear Model with Nonfundamental Component -- 7. Dynamic Linear Model with Garch Error -- 8. Subset VAR Framework for Establishing Linkages Between Markets -- 9. Discussion of Results -- 10. Conclusions -- Appendix A: Setting up the DLM with Nonfundamental Component -- Appendix B: Setting up the DLM with Garch Error -- Appendix C: Estimating the Parameters of the DLM -- Acknowledgments -- References -- Index.