We estimate Kyle's (1985) price-impact coefficient $\lambda$ directly from daily equity order flow and test its ability to forecast the cross-section of subsequent stock returns. Using CRSP data from 2020 to 2025, we construct firm-month measures of signed order flow and two estimators of $\hat\lambda_{it}$: a within-month price-impact regression and an Amihud-style ratio. Signed order flow strongly predicts contemporaneous and one-month-ahead returns, while volume volatility predicts lower subsequent returns, consistent with widening price impact degrading price discovery. Fama-MacBeth regressions confirm that our order-flow signal carries significant cross-sectional return information after Newey--West adjustment. Theoretically, we resolve the liquidity premium puzzle of Constantinides (1986) through an adverse-selection mechanism: low order flow widens $\lambda$ and depresses prices today; subsequent normalization restores prices, generating the illiquidity premium without risk-based compensation.
This study examines the impact of monetary policy shocks (MPS) on future stock price crash risk (SPCR), using a sample of US firms from 1995 to 2019. We find that expansionary MPS significantly reduce the likelihood of SPCR, while contractionary MPS show no statistically significant effect on SPCR. These results rema...
Shun-Shun Xu, Haifeng Guo, Yeqin Zeng· International Journal of Fin...· 0 citations
Using historical data on U.S. commercial bank balance sheets, we show that banks’ maturity mismatch has more than tripled since the mid-1980s, moving in close lockstep with declining interest rates and term premia. We rationalize these trends in a model of bank portfolio choice in which banks must cover operating costs...
Thomas M. Mertens, Pascal Paul, Andrés Schneider· Federal Reserve Bank of San...· 0 citations
This paper aims to examine whether the forces linking financial markets to real economic activity operate differently across business cycle phases, using quarterly US data from 1990 to 2024, spanning four recession episodes. Specifically, the author asks whether the mechanism that normally keeps equity markets anch...
Naowar Mohiuddin· Studies in Economics and Fin...· 0 citations
This paper investigates how Economic Policy Uncertainty (EPU) affects the returns and volatility (proxied by squared returns) of 448 S&P 500 stocks over the period January 2010–December 2020, and whether volatility persistence is related to EPU sensitivity. Persistence is measured with three semiparametric estimators o...
G. Caporale, L. Gil-Alana, Jesus Pantoja Cárdenas· CESifo working papers· 0 citations
