This paper analyzes brief episodes of high-intensity quotes turnover and revision-"bursts" in quotes-in the U.S. equity market. Such events occur very frequently, several hundred times a day for actively traded stocks. We find significant price impact associated with these market makers initiated events, about five times higher than during non-burst periods. Bursts in quotes are concurrent with short-lived structural breaks in the informational relationship between market makers and market takers. During bursts, market makers no longer passively impound information from order flow into quotes-a departure from the traditional market microstructure paradigm. Rather, market makers significantly impact prices during bursts in quotes. Further analysis shows that there is asymmetry in adverse selection between the bid and ask sides of the limit order book and only a sub-population of market makers enjoys an informational advantage during bursts. Market makers on the side opposite of the burst suffer elevated adverse selection costs, while market makers on the side of the burst realize positive spread, irrespective of the order flow direction. Our results call attention to the need for a new microstructure perspective in understanding modern high-frequency limit order book markets and the quote manipulation strategies at disposal of the fast market makers.

We consider the problem of testing for unit root in time series where the error term of the series is itself close to unit root—near double-integrated series. As the error term approaches unit root, existing tests no longer retain reasonable small sample properties. We introduce a test statistic that can become better behaved in small sample as the error term becomes nearer to unit root. Empirical applications reject the unit root null hypothesis for the U.S. Consumer Price Index and unemployment rate monthly series from 1986 to 2019.

We study price discovery in a model where an informed agent has arbitrary private information about future state probabilities and trades state-contingent claims. The model unifies the key elements of Arrow and Debreu (1954) and Kyle (1985). When the claims are options, the informed agent has arbitrary information about the underlying asset's payoff distribution and trades option portfolios. Our setting provides the first equilibrium framework that encompasses longstanding option-market practices and regularities, including common trading strategies and the volatility smile across strikes.