Discerning Information from Trade Data

56 Pages Posted: 23 Jan 2012 Last revised: 16 May 2016

See all articles by David Easley

David Easley

Cornell University - Department of Economics; Cornell University - Department of Information Science

Marcos Lopez de Prado

Cornell University - Operations Research & Industrial Engineering; Abu Dhabi Investment Authority; True Positive Technologies

Maureen O'Hara

Cornell University - Samuel Curtis Johnson Graduate School of Management; Cornell SC Johnson College of Business

Date Written: March 1, 2015

Abstract

How best to discern trading intentions from market data? We examine the accuracy of three methods for classifying trade data: bulk volume classification (BVC), Tick Rule and Aggregated Tick Rule. We develop a Bayesian model of inferring information from trade executions, and show the conditions in which tick rules or bulk volume classification will predominate.

Empirically, we find that Tick rule approaches and BVC are relatively good classifiers of the aggressor side of trading, but bulk volume classifications are better linked to proxies of information-based trading. Thus, BVC would appear to be a useful tool for discerning trading intentions from market data.

Keywords: Trade Classification, Bulk Volume Classification, flow toxicity, volume imbalance, market microstructure

JEL Classification: C02, D52, D53, G14

Suggested Citation

Easley, David and López de Prado, Marcos and López de Prado, Marcos and O'Hara, Maureen, Discerning Information from Trade Data (March 1, 2015). Journal of Financial Economics, 120(2), pp. 269-286. May 2016, Johnson School Research Paper Series No. 8-2012, Available at SSRN: https://ssrn.com/abstract=1989555 or http://dx.doi.org/10.2139/ssrn.1989555

David Easley (Contact Author)

Cornell University - Department of Economics ( email )

414 Uris Hall
Ithaca, NY 14853-7601
United States
607-255-6283 (Phone)
607-255-2818 (Fax)

Cornell University - Department of Information Science ( email )

402 Bill & Melinda Gates Hall
Ithaca, NY 14853
United States

Marcos López de Prado

Cornell University - Operations Research & Industrial Engineering ( email )

237 Rhodes Hall
Ithaca, NY 14853
United States

HOME PAGE: http://www.orie.cornell.edu

Abu Dhabi Investment Authority ( email )

211 Corniche Road
Abu Dhabi, Abu Dhabi PO Box3600
United Arab Emirates

HOME PAGE: http://www.adia.ae

True Positive Technologies ( email )

NY
United States

HOME PAGE: http://www.truepositive.com

Maureen O'Hara

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States
607-255-3645 (Phone)
607-255-5993 (Fax)

Cornell SC Johnson College of Business ( email )

Ithaca, NY 14850
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
8,351
Abstract Views
28,849
Rank
1,545
PlumX Metrics