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Using the classic moral hazard problem with limited liability we characterize the optimal incentive contracts when first an other-regarding principal interacts with a self-regarding agent. The optimal contract differs considerably when the principal is ‘inequity averse’ vis-a-vis the self-regarding case. Also the agent is generally (weakly) better-off under an ‘inequity averse’ principal compared to a ‘status seeking’ principal. Then we extend our analysis and characterize the optimal contracts when both other-regarding principal and other-regarding agent interact.

The author investigates the success of the recently launched intraday auction at the London Stock Exchange (LSE) along various metrics such as liquidity, price deviation, and so on. This initiative is important because of the coming Markets in Financial Instruments Directive (MIFID II) regulations, which will set a limit on dark trading and seek to encourage larger trade sizes. The author finds that this initiative has been successful for finding liquidity (block trading) for midcap stocks but less so for the FTSE 100 stocks. Interestingly, he also finds that alternative venues such as BATS, Chi-X, and Turquoise stop being good sources for liquidity during the auction phase on the LSE.

This article seeks to estimate the impact of the ban imposed on short selling by various market regulators across Europe in late 2008, at the peak of the financial crisis. The authors select the STOXX 600 constituents as their universes and do an event study of the ban period, in contrast with the preand post ban-period for the same universe of stocks. In particular, the article reports what impact the ban had, if any, on the efficiency of the market (abnormal returns, volatility, etc.) and market microstructure variables (spread, shape of the order book, etc.), using tick data from Reuters. The authors find a deleterious effect on both sets of variables during the ban, even after controlling for the general crisis like market environment (using STOXX 600 stocks not under the purview of the ban).

Using the classic moral hazard problem with limited liability we characterize the optimal contracts when an other-regarding principal interacts with a self-regarding agent. The optimal contract differs considerably when the principal is ‘inequity averse’ vis-a-vis the self-regarding case. Also the agent is generally (weakly) better-off under an ‘inequity- averse’ principal compared to a ‘status seeking’ principal.