Research Interests

My most broad area of interest is financial economics, with a particular focus on problems of asymmetric information in financial markets. Currently, I am thinking about how high-frequency trading impacts the process of information acquisition and dissemination in equity markets. I am also interested in empirical market microstructure. In my previous lives as a PhD, Master's and Undergraduate student, I have spent time working on dark trading and maker-taker fees, asymmetric information issues in banking, and optimal resource extraction problems, respectively.


Brolley, Michael, and David A. Cimon, Order Flow Segmentation, Liquidity and Price Discovery: The Role of Latency Delays, Journal of Financial and Quantitative Analysis, accepted.


Latency delays—known as “speed bumps”—slow the execution of orders at an exchange, often to protect market makers against latency arbitrage. We study informed trading in a fragmented market, where one exchange introduces a latency delay on market orders. While liquidity improves at the delayed exchange and overall exchange volume increases, the delay concentrates informed trading at the conventional exchange, where liquidity worsens. This segmentation may improve price discovery when the frequency of liquidity trading is relatively high, at the expense of lower investor welfare; however, the reverse is true for relatively low liquidity trading.

Brolley, Michael, Price Improvement and Execution Risk in Lit and Dark Markets, Management Science, accepted.


Dark pools offer price improvement over displayed quotes, but non-displayed liquidity implies execution uncertainty. Because investor limit orders also provide price improvementwith execution risk, dark pools offer a natural substitute. In a model of informed trading in a market with a displayed limit order book and a dark pool that offers price improvement, higher valuation investors sort into order types with lower execution risk, generating an “immediacy hierarchy”. Dark pool price improvement predicts the order in the hierarchy: a price improvement closer to (farther from) the mid-quote positions dark orders below (above) limit orders, which improves (worsens) market quality and welfare. A dark pool operated by the limit order book is welfare-improving, while welfare reduces with an independently-operated pool. Because active and passive order flow migrates to the dark pool where price impact occurs only post-trade, price efficiency worsens with any positive level of dark trading.

J. M. Hartwick and M. Brolley, 2008, The Quadratic Oil Extraction Oligopoly, Resource and Energy Economics, 30(4), 568-577. [Working Paper]


Each extractor has a distinct initial endowment of oil and a distinct quadratic extraction cost and faces a linear industry demand schedule. We observe in a discrete-time model with a finite number of periods that the open loop and closed loop solutions are the same if initial stocks are such that each competitor is extracting in every period in which her competitors are extracting.

Working Papers

Informed Trading in a Low-Latency Limit Order Market (joint with Katya Malinova)
Status: Revise and Resubmit, JFM


We provide a novel framework of a low-latency limit order market, where informed and liquidity investors compete with a professional liquidity provider who has a monitoring advantage. We apply our model to study the impact of trading frequency and transaction costs on liquidity, trading volume, and trader welfare. Independent of trading frequency, a reduction in exogenous transaction costs leads to more market orders (over limit orders), higher volume, and a larger volume of intermediated trades. Taken together, an increase in trading frequency leads to higher volume and welfare only if exogenous costs decline sufficiently fast; otherwise volume and welfare fall.

Diamonds in the Rough: The Value of Scouting for Early-Stage Funding (joint with Diego Amaya and Brian F. Smith)
Status: Submitted.


The IPO activity of small early-stage companies has generally declined in the last few decades. Governments and exchanges have responded with new regulations to encourage increased access for these firms to public markets. On the other hand, concerns have been raised about whether these lower standards for going public may cause harm; in particular, the smallest IPOs have been linked to increased fraud, poor corporate governance and long-term post-IPO underperformance. In this paper, we document one exchange’s approach to encouraging small IPOs by compensating parties who scout and promote funding of early-stage companies. We find that the program is successful in taking public a large number of small companies. However, the average long-term performance of these companies remains poor and is no better than that of small firms following the conventional IPO process.

Work in Progress

Maker-Taker Fees and Liquidity: The Role of Commission Structures (with K. Malinova)

Old Working Papers

Informed Trading and Maker-Taker Fees in a Low-Latency Limit Order Market
     (with K. Malinova)