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What's Not There: Odd Lots and Market Data
Author(s) -
O'HARA MAUREEN,
YAO CHEN,
YE MAO
Publication year - 2014
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12185
Subject(s) - equity (law) , order (exchange) , sample (material) , business , price discovery , high frequency trading , computer science , econometrics , financial economics , database , mathematics , economics , finance , algorithmic trading , political science , chemistry , chromatography , law , futures contract
We investigate odd‐lot trades in equity markets. Odd lots are increasingly used in algorithmic and high‐frequency trading, but are not reported to the consolidated tape or in databases such as TAQ. In our sample, the median number of odd‐lot trades is 24% but in some stocks odd lots are 60% or more of trading. Odd‐lot trades contribute 35% of price discovery, consistent with informed traders using odd lots to avoid detection. Omitting odd‐lot trades leads to inaccuracies in order imbalance measures and makes sentiment measures unreliable. Excluding odd lots from the consolidated tape raises important regulatory issues.