Price Clustering and Round Number Effects - Evidence from the German Market
40 Pages Posted: 4 Nov 2013 Last revised: 2 Jun 2016
Date Written: July 12, 2014
Price clustering was found to be a major artifact of securities trading over many decades. In the literature several conjectures about the origin of these effects have been put forward. However, most explanations are not applicable anymore since today a great share of the trading activity is due to automated trading systems which are assumed to be unaffected by any number bias. I analyze round number effects in the German market and thereby contribute to existing literature by showing that round number effects are also present in the Germany, but exhibit local stylized facts. Further, new determinants of round number effects are identified. In accordance with increasing algorithmic trading activities the strength of effects is decreasing over the observation period. On the other hand, an analysis of retail investor trading reveals that the magnitude of human round number biases remains stable over time and is mainly induced by the usage of limit orders.
Keywords: Price Anomalies, Round Number Effects, Order Clustering, Xetra, Tick Size, Retail Investors
JEL Classification: G10, G14
Suggested Citation: Suggested Citation