Yury Olshanskiy

Abstract. This paper investigates abnormal behavior in individual stocks using two decades of U.S. stock market high-frequency data. It identifies hundreds of thousands of short episodes where stocks exhibit explosive behavior, deviating from the unit-root null hypothesis. These phenomena span multiple days, differ from typical return movements, and affect a wide range of stocks, including liquid and large-cap stocks. Explosive episodes account for a considerable portion of stocks' idiosyncratic variance. These are transitional episodes with partial reversal, providing predictable returns, setting them apart from large overnight and high-frequency jumps. I analyze stocks and their susceptibility to explosive behavior in connection with aggregate market fluctuations. While downward explosions tend to cluster among stocks and are more pro-cyclical, upward explosions appear as an idiosyncratic phenomenon. Explosive episodes involve significant buying and selling pressure along with trading volume. To explain explosive price movements, the paper introduces a model involving inelastic buyers, insiders, and competitive sellers. It emphasizes the role of explosions in the price discovery process and addresses the observed reversal. The frequency, severity, and reversal of explosiveness are explained by the expected size of inelastic demands, the knowledge possessed by a representative insider, and the frequency of seeing both in the market. Using short interest dissemination dates, empirical tests validate the model's predictions, indicating a higher likelihood of explosive behavior in stocks with substantial reported short interest.

Abstract. We study the stability of factor structure by analyzing its variation on different market events. We start by documenting variation in distributions, means, volatilities, and correlations in a set of characteristics managed long-short portfolios on the weeks with large market moves, leading earnings announcements, and FOMC announcements with unexpected shocks to interest rates. This variation manifests in differences in factors extracted using characteristics based on statistical methods that we document using Instrumented PCA. The factor structure shows variation in the factor loadings and in the distribution of factors itself. We propose two ways of capturing event-specific variation in the factor structure. The first method, Treatment-IPCA, estimates orthogonal factors specific to the events we consider. We find significant premia associated with some treatment factors. The second method, Boosted- IPCA allows us to test the differential importance of firm characteristics in describing the cross-section of stock returns on market events relative to base periods.

Abstract. This paper explores market making under imperfect competition. Using a dataset on individual-level intraday market making in an option market, I demonstrate a significant level of concentration in liquidity provision across options. I propose a dynamic duopoly market making model wherein inventory distribution shapes agents' strategic behavior and observed liquidity provision on best quotes. I characterize the solution up to the optimal actions, enabling straightforward numerical solutions under both non-cooperative and cooperative equilibria. Qualitatively, the equilibria differ under various sets of parameters, allowing for a wide range of possible inventory and liquidity dynamics, some of which are non-trivial. Tight capital constraints and a high rate of order arrival lead to violations of a monotonic principle. In particular, this results in observing ``resting'' market maker behavior when an agent does not provide liquidity. Conversely, relaxed constraints lead to a more standard equilibrium where market makers reduce inventory imbalances. Analyzing a grim-trigger non-Markov equilibrium, I find that collusive behavior among market makers increases liquidity prices but reduces their variability.

Abstract. This paper investigates market-making activities in a rapidly expanding market over a two-and-a-half-year period following the introduction of option contracts on a highly liquid ETF. Utilizing proprietary data on the high-frequency trading and quoting activities of all market participants, this study offers a unique platform for examining how competition in market making evolves. Initially, we present unorthodox evidence revealing that market makers accumulate substantial inventory positions, which includes positions held overnight, exposed to unhedged risk. Subsequently, we construct high-frequency measures of liquidity concentration that capture the degree of aggressiveness in liquidity provision by designated market makers and other active liquidity providers. Our findings indicate that this liquidity provision is correlated with trading volume and price quotations, with a significant dependence on the inventory positions of market makers. We observe that as the market matures, liquidity concentration gradually decreases, mainly for short-term contracts. Intriguingly, even during crisis periods, market makers do not vanish, and the overall liquidity concentration in the market does not experience substantial variations.

Abstract. This paper investigates the relationship between option markets and individual stocks in the context of ``explosive'' events. Utilizing aggregated metrics of outstanding open interest in options for the universe of U.S. common shares in conjunction with high-frequency stock data, I analyze the susceptibility of stocks to (1) subsequent abnormal returns and (2) explosive transitional price dynamics. The study leverages the floating nature of aggregate greeks, primarily delta, conditional on previously formed open interest in options. I utilize fluctuations in Greeks, driven by the systematic-risk component of a return, as exogenous shocks for the further analysis of explosiveness and subsequent returns. The preliminary findings suggest that explosiveness and negative returns are more likely for stocks exposed to fluctuations in the aggregated greeks, aligning with similar findings related to short interest as presented in Olshanskiy (2023). In essence, the aggregated metrics in delta can be considered as a form of floating short interest. Along these lines, I develop a model that incorporates the fluctuation in inelastic demand due to prior fluctuations in price, resembling the mechanics of a ``short squeeze''.

Abstract. Stock market participation is currently low, but technological innovation could potentially bridge this gap. An open question persists regarding how the emergence of fintech technologies interacts with peer effects. To address this, we have partnered with a large telecom company to investigate the impact of a new retail investment product on stock market participation in a middle-income economy. We employ regression discontinuities around the rules governing past advertising allocation and utilize extensive social network data to examine the effect of advertising on product adoption and its propagation through the network. The environment provides a conducive laboratory for studying peer effects in portfolio formation and saving decisions.

Abstract. This paper explores the concept that agents' disagreement is characterized by not only heterogeneity in their priors regarding the future states of an economy but also by differences in their knowledge about the existence of these states. To emphasize this distinction, it introduces belief generators that generate disagreement through a two-step process. Initially, they allocate a subset of states to an agent, followed by providing her with priors based on the assigned states. The paper illustrates how these belief generators create "systematic biases" in the economy, even when they are "naturally defined." It proposes qualitative methods for measuring these biases and, as a numerical example, applies the theoretical findings to enhance the basic calibration of the CCAPM model, incorporating disagreement about the first and second moments of the consumption growth process.

Abstract. This project develops a three-period model to examine the influence of financial frictions on households' (HHs) capital allocation between short-term and long-term projects. In this framework, a continuum of experts allocates their capital among various short-term and long-term projects and subsequently sells the claims on project returns to HHs within a competitive market. While the markets are complete, agents encounter distinct prices. HHs incur fees for participating in the market, which lead to distortions in market prices and, consequently, impact the ex-ante real allocation of capital. I have characterized the equilibrium of this model in closed-form, assuming agents have log-utilities. The comparative statics of this equilibrium provide insights into the significance of transaction costs for the real side of the economy and help assess why expectations regarding future transaction costs hold relevance.

Abstract. This paper investigates the impact of ``discrete-time trading design,'' where an exchange trading day consists of batch auctions with fixed non-zero time intervals, involving trading at discrete times alongside continuous information flow. We examine a dynamic trading model featuring oligopolistic, symmetric, risk-averse, and relatively overconfident traders to explore the effects on social welfare and liquidity characteristics. Social welfare analysis, viewed from an individual trader's perspective, indicates that the implementation of ``discrete-time trading design'' leads to decreased trading aggressiveness and volume. The impact on social welfare depends on traders' beliefs about informativeness and disagreement levels, influencing the outcome positively or negatively.