Is Smaller Better? Examining the Decrease in Trade Sizes in Financial Markets

Abstract

Financial markets have undergone dramatic changes with technological incorporations to trading and increases in retail participation. From 2016 through 2022 the average trade size has decreased from 117 shares to 51 shares and the proportion of odd lots trades has increased from 31% to 71%. These shifts in trading are accompanied by increases in daily volatility. One share trades have become common. One share trades have an inverted "U" shape intraday pattern. The percent of one share trade frequency is related to increased intraday volatility. One share trades consist of only 0.07% of total volume, yet are highly informative, and contribute to 9.78% of price discovery over the course of our sample and almost 20% of all price discovery in the last year of our sample 2022.