Trade Size and Informed Trading: Which Trades are Big?

Posted: 20 Apr 2004

See all articles by Frank Heflin

Frank Heflin

University of Georgia - J.M. Tull School of Accounting

Kenneth W. Shaw

University of Missouri at Columbia - School of Accountancy

Abstract

We find adverse-selection spread components increase sharply in the ratio of trade size to quoted depth, and spike when trade size equals quoted depth. We find two previously documented and prominent indicators of informed trading, raw trade size and high-trading-volume half-hours, offer almost no explanatory power for informed trading measures beyond trade size to quoted depth, and a third indicator, time of day, offers no explanatory power among trades with high trade size to quoted depth. Our results suggest trade size to quoted depth is perhaps the single most important indicator, identified to date, that a trade is informed.

Keywords: Informed trading, adverse selection, microstructure

JEL Classification: G10, G11, G12

Suggested Citation

Heflin, Frank and Shaw, Kenneth W., Trade Size and Informed Trading: Which Trades are Big?. Available at SSRN: https://ssrn.com/abstract=533343

Frank Heflin (Contact Author)

University of Georgia - J.M. Tull School of Accounting ( email )

Athens, GA 30602
United States
706-542-1616 (Phone)
706-542-3630 (Fax)

Kenneth W. Shaw

University of Missouri at Columbia - School of Accountancy ( email )

420 Cornell Hall
Columbia, MO 65211
United States
573-882-5939 (Phone)
573-882-2437 (Fax)

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