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TRADE SIZE AND INFORMED TRADING: WHICH TRADES ARE “BIG”?
Author(s) -
Heflin Frank,
Shaw Kenneth W.
Publication year - 2005
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.2005.00118.x
Subject(s) - explanatory power , economics , trade volume , power (physics) , volume (thermodynamics) , econometrics , business , international economics , epistemology , quantum mechanics , philosophy , physics
We find adverse‐selection spread components increase sharply in the ratio of trade size to quoted depth, and spike when trade size equals quoted depth. We find that two previously documented and prominent indicators of informed trading, raw trade size and high‐trading volume half‐hours, offer almost no explanatory power for informed trading measures beyond trade size to quoted depth, and a third indicator, time of day, offers no explanatory power among trades with high trade size to quoted depth. Our results suggest trade size to quoted depth is perhaps the single most important indicator that a trade is informed.