A (Sub)penny For Your Thoughts: Tracking Retail Investor Activity in TAQ
64 Pages Posted: 1 Sep 2022 Last revised: 30 Sep 2022
Date Written: September 24, 2022
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: Suggested Citation