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Trade Size and Informed Trading: Which Trades are Big?


Frank Heflin


Florida State University - College of Business

Kenneth W. Shaw


University of Missouri at Columbia - School of Accountancy

Journal of Financial Research, Forthcoming

Abstract:     
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 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, identified to date, that a trade is informed.

Keywords: Informed trading, adverse selection, microstructure

JEL Classification: G10, G11, G12

Accepted Paper Series


Date posted: April 20, 2004  

Suggested Citation

Heflin, Frank and Shaw, Kenneth W., Trade Size and Informed Trading: Which Trades are Big?. Journal of Financial Research, Forthcoming. Available at SSRN: http://ssrn.com/abstract=533343

Contact Information

Frank Heflin (Contact Author)
Florida State University - College of Business ( email )
Rovetta Business Building
Florida State University
Tallahassee, FL 32306-1110
United States
850-644-7862 (Phone)
850-644-8234 (Fax)
Kenneth W. Shaw
University of Missouri at Columbia - School of Accountancy ( email )
420 Cornell Hall
Columbia, MO 65211
United States
573-882-5939 (Phone)
573-882-2437 (Fax)
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