Abstract

http://ssrn.com/abstract=1892972
 
 

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What’s Not There: The Odd-Lot Bias in TAQ Data


Maureen O'Hara


Cornell University - Samuel Curtis Johnson Graduate School of Management

Chen Yao


University of Warwick

Mao Ye


University of Illinois at Urbana-Champaign

July 22, 2011

Johnson School Research Paper Series No. 31-2011
Midwest Finance Association 2012 Annual Meetings Paper

Abstract:     
We investigate the systematic bias that arises from the exclusion of trades for less than 100 shares from TAQ data. In our sample, we find that the median number of missing trades per stock is 19%, but for some stocks missing trades are as high as 66% of total transactions. Missing trades are more pervasive for stocks with higher prices, lower liquidity, higher levels of information asymmetry and when volatility is low. We show that odd lot trades contribute 30 % of price discovery and trades of 100 shares contribute another 50%, consistent with informed traders splitting orders into odd-lots and smaller trade sizes. The truncation of odd-lot trades leads to a significant bias for empirical measures such as order imbalance, challenges the literature using trade size to proxy individual trades, and biases measures of individual sentiment. Because odd-lot trades are more likely to arise from high frequency traders, we argue their exclusion from TAQ and the consolidated tape raises important regulatory issues.

Number of Pages in PDF File: 47

Keywords: TAQ data, Odd-lots, Price Discovery, Transparency, Order Imbalance, Retail Trading

JEL Classification: G10, G14

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Date posted: July 23, 2011 ; Last revised: March 18, 2014

Suggested Citation

O'Hara, Maureen and Yao, Chen and Ye, Mao, What’s Not There: The Odd-Lot Bias in TAQ Data (July 22, 2011). Johnson School Research Paper Series No. 31-2011; Midwest Finance Association 2012 Annual Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1892972 or http://dx.doi.org/10.2139/ssrn.1892972

Contact Information

Maureen O'Hara (Contact Author)
Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )
Ithaca, NY 14853
United States
607-255-3645 (Phone)
607-255-5993 (Fax)
Chen Yao
University of Warwick ( email )
Warwick Business School
Gibbet Hill Road
Coventry, West Midlands CV47AL
United Kingdom
+44 024 7652 2828 (Phone)
Mao Ye
University of Illinois at Urbana-Champaign ( email )
406 Wohlers
1206 South 6th Street
Champaign, IL 61820
United States
2172440474 (Phone)
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