A (Sub)penny For Your Thoughts: Tracking Retail Investor Activity in TAQ

64 Pages Posted: 1 Sep 2022 Last revised: 30 Sep 2022

See all articles by Brad M. Barber

Brad M. Barber

University of California, Davis

Xing Huang

Washington University in St. Louis - Olin Business School

Philippe Jorion

University of California, Irvine - Paul Merage School of Business

Terrance Odean

University of California, Berkeley - Haas School of Business

Christopher Schwarz

University of California, Irvine - The Paul Merage School of Business

Date Written: September 24, 2022

Abstract

We placed 85,000 retail trades at six retail brokers to validate the Boehmer et al. (2021) algorithm, which uses subpenny trade prices to identify and sign retail trades. The algorithm identifies only 35% of our trades as retail, incorrectly signs 28% of trades, and yields uninformative order imbalance measures for 30% of stocks. We modify the algorithm by signing trades using the quoted spread midpoints. The new method does not affect identification rates but reduces the signing error rates to 5% and provides informative order imbalance measures for all stocks. We use the GameStop frenzy to demonstrate our method’s improvement.

Keywords: retail trading, execution quality, bid/ask spread, market microstructure

JEL Classification: G12, G15, G50

Suggested Citation

Barber, Brad M. and Huang, Xing and Jorion, Philippe and Odean, Terrance and Schwarz, Christopher, A (Sub)penny For Your Thoughts: Tracking Retail Investor Activity in TAQ (September 24, 2022). Available at SSRN: https://ssrn.com/abstract=4202874 or http://dx.doi.org/10.2139/ssrn.4202874

Brad M. Barber

University of California, Davis ( email )

Graduate School of Management
One Shields Avenue
Davis, CA 95616
United States
530-752-0512 (Phone)
530-752-2924 (Fax)

Xing Huang

Washington University in St. Louis - Olin Business School ( email )

Simon Hall 211
Washington University in St. Louis
St. Louis, MO 63130
United States

Philippe Jorion

University of California, Irvine - Paul Merage School of Business ( email )

Campus Drive
Irvine, CA 92697-3125
United States
949-824-5245 (Phone)
949-824-8469 (Fax)

Terrance Odean

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States
510-642-6767 (Phone)
510-666-2561 (Fax)

HOME PAGE: http://www.haas.berkeley.edu/faculty/odean.html

Christopher Schwarz (Contact Author)

University of California, Irvine - The Paul Merage School of Business ( email )

Irvine, CA 92697-3125
United States

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