About

Terrence Hendershott is the Willis H. Booth Chair in Banking and Finance at UC Berkeley Haas School of Business and serves as the Faculty Director of the Master of Financial Engineering Program. His work spans a range of financial instruments trading on exchanges and over-the-counter in the U.S. and internationally. He is an expert on the structure, design, and regulation of financial markets and investigates how market participants such as market makers, high-frequency traders, and institutional investors influence price discovery and liquidity. His research also focuses on the competition between electronic and traditional markets and the role of information technology in those markets. Hendershott has chaired the NASDAQ Economic Advisory Board and served as a visiting economist at the New York Stock Exchange. His numerous honors include best paper awards from the Review of Financial Studies and the Financial Review, as well as awards from NYSE and NASDAQ for work on equity trading and market microstructure. Since 2001, he has held various positions at Haas, including faculty director and endowed chair, and has been recognized for his contributions to understanding market microstructure, electronic trading, and financial market regulation.

Research topics

• Computer Science
• Econometrics
• Statistics
• Economics
• Mathematics
• Computer Security
• Financial economics
• Monetary economics
• Business
• Finance
• Demography
• Geography
• Biology
• Data science
• Telecommunications
• Marketing

Selected publications

• Option Auctions

  Review of Financial Studies · 2025-07-05

  articleOpen access1st authorCorresponding

  Abstract Wholesale market makers pay for retail options orders that must be executed on exchanges. Payment for order flow (PFOF) wholesalers compete via price improvement in exchange auctions. To attract retail orders, wholesalers run more auctions when their recent price improvement has been lower. However, auction price improvement lowers market maker revenues. Wholesalers earn revenues to pay PFOF in nonauction trades where their designated market maker status increases their execution priority. While some auctions produce substantial price improvement, most do not have multiple bidders offering meaningful price improvement. Overall, options market structure better promotes competition in auctions than in nonauctions.

  PublisherDOI

• Stock exchanges as platforms for data and trading

  Journal of Financial Markets · 2025-05-09 · 2 citations

  article1st authorCorresponding
  PublisherDOI

• Order Exposure in High-Frequency Markets

  Journal of Financial and Quantitative Analysis · 2025-09-12

  articleOpen access

  Abstract We examine hidden orders usage by algorithmic traders (ATs) and nonATs. ATs extensively use hidden orders but of smaller size than nonATs, who are the primary contributors to hidden volume. ATs’ relative share of hidden volume decreases with volatility, adverse selection costs, and the relative tick-size. Proprietary ATs (HFTs), who differ from agency ATs (AATs) in their information sets and potential gains from trade, hide orders to reduce competition for liquidity provision, whereas AATs use hidden orders to conceal information in their more informed orders and manage picking-off risk. Finally, superior technology provides limited benefit for hidden order execution.

  PublisherOA PDFDOI

• Public and Private Information in Quotes and Trades

  SSRN Electronic Journal · 2024-01-01 · 2 citations

  articleOpen accessSenior author
  PublisherDOI

• Stock Exchanges as Platforms for Data and Trading

  SSRN Electronic Journal · 2024-01-01

  preprintOpen access
  PublisherDOI

• Nonstandard Errors

  The Journal of Finance · 2024 · 85 citations

  • Computer Science
  • Econometrics
  • Statistics

  ABSTRACT In statistics, samples are drawn from a population in a data‐generating process (DGP). Standard errors measure the uncertainty in estimates of population parameters. In science, evidence is generated to test hypotheses in an evidence‐generating process (EGP). We claim that EGP variation across researchers adds uncertainty—nonstandard errors (NSEs). We study NSEs by letting 164 teams test the same hypotheses on the same data. NSEs turn out to be sizable, but smaller for more reproducible or higher rated research. Adding peer‐review stages reduces NSEs. We further find that this type of uncertainty is underestimated by participants.

  DOI

• When failure is an option: Fragile liquidity in over-the-counter markets

  Journal of Financial Economics · 2024-05-21 · 9 citations

  articleOpen access1st authorCorresponding

  Markets can give false impressions of liquidity and stability if failed attempts to trade are ignored. For collateralized loan obligations, we quantify this bias by estimating the total cost of immediacy (TCI) which incorporates failure rates and failure costs. TCI is substantially higher than the observed cost, 0.3–3.8% versus 0.04–0.12% across credit-quality tranches because trade failures are frequent, failure costs are large, and failure costs and rates are correlated. TCI is almost double the realized gains from trade for low-rated tranches. Overall, auction-based over-the-counter markets become illiquid and fragile, especially during stressful periods for low-rated assets.

  PublisherDOI

• Option Auctions

  SSRN Electronic Journal · 2022-01-01 · 3 citations

  articleOpen access1st authorCorresponding
  PublisherDOI

• Transparency in fragmented markets: Experimental evidence

  Journal of Financial Markets · 2022-03-31 · 3 citations

  article1st authorCorresponding
  PublisherDOI

• Do We Need Dealers in OTC Markets?

  SSRN Electronic Journal · 2021-01-01 · 1 citations

  articleOpen access1st authorCorresponding
  PublisherDOI

Recent grants

• CAREER: Electronic Trading Systems

  NSF · $375k · 2002–2008

Frequent coauthors

• Charles M. Jones

  49 shared

• Carole Comerton‐Forde

  University of Melbourne

  46 shared

• Pamela C. Moulton

  43 shared

• Mark S. Seasholes

  William Carey University

  39 shared

• Norman Schürhoff

  Swiss Finance Institute

  21 shared

• Michael J. Barclay

  University of Rochester

  20 shared

• Ryan Riordan

  19 shared

• Albert J. Menkveld

  Vrije Universiteit Amsterdam

  18 shared

Education

• Ph.D., Economics

  University of California, Berkeley

  1985

• M.S., Economics

  University of California, Berkeley

  1981

• B.A., Economics

  University of California, Los Angeles

  1978

Awards & honors

• Michael J. Brennan Best Paper Award (2014)
• Financial Review Outstanding Publication Award (2014)
• Philip Brown Prize (2013)
• New York Stock Exchange Euronext Award (2001, 2008)
• Nasdaq Award for best paper on market microstructure (2007)