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Market Sidedness: Insights into Motives for Trade Initiation

Robert A. Schwartz

Baruch College - CUNY

Asani Sarkar

Federal Reserve Bank of New York

July 2007

FRB of New York Staff Report No. 292

We infer motives for trade initiation from market sidedness. We define trading as more two-sided (one-sided) if the correlation between the numbers of buyer- and seller-initiated trades increases (decreases), and assess changes in sidedness (relative to a control sample) around events that identify trade initiators. Consistent with asymmetric information, trading is more one-sided prior to merger news. Consistent with belief heterogeneity, trading is more two-sided before earnings and macro announcements with greater dispersions of analyst forecasts, and after news events with larger announcement surprises. A simultaneous equation system is used to examine the co-determinacy of sidedness, the bid-ask spread, volatility, the number of trades and the order imbalance.

Number of Pages in PDF File: 56

Keywords: Trade initiation, sidedness, asymmetric information, heterogeneous beliefs, differential information, demand for immediacy, earnings, macroecnomic announcements, merger news

JEL Classification: G10, G14, D82, G34, M41, G29

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Date posted: March 20, 2007  

Suggested Citation

Schwartz, Robert A. and Sarkar, Asani, Market Sidedness: Insights into Motives for Trade Initiation (July 2007). FRB of New York Staff Report No. 292. Available at SSRN: http://ssrn.com/abstract=972707 or http://dx.doi.org/10.2139/ssrn.972707

Contact Information

Robert A. Schwartz
Baruch College - CUNY ( email )
Zicklin School of Business
17 Lexington Avenue
New York, NY 10010
United States
646-312-3467 (Phone)
646-312-3530 (Fax)
Asani Sarkar (Contact Author)
Federal Reserve Bank of New York ( email )
Research Department
33 Liberty Street
New York, NY 10045
United States
212-720-8943 (Phone)
212-720-1582 (Fax)
HOME PAGE: http://www.newyorkfed.org/research/economists/sarkar/pub.html
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