The Other Side of the Trading Story: Evidence from NYSE
29 Pages Posted: 8 Sep 2008 Last revised: 12 Jul 2009
Date Written: May 13, 2009
We analyze the TORQ dataset on the NYSE, breaking down transactions depending on whether the active or passive side was institutional or individual. We find that institutions are best informed, and earn highest returns when trading with individuals as counterparty. We also confirm the results of recent experimental studies that informed traders switch to limit orders towards the end of the day. Moreover, we discover that trading between institutions seems to carry little information, largely liquidity-driven and generates symmetrical order shocks, whereas the information asymmetry between institutions and individuals tends to give rise to negative correlation between buys and sells.
Keywords: liquidity trade, informed trades
JEL Classification: G14, G12
Suggested Citation: Suggested Citation