Trade Classification Algorithms for Electronic Communications Network Trades

27 Pages Posted: 22 Jan 2007

See all articles by Bidisha Chakrabarty

Bidisha Chakrabarty

Saint Louis University - Richard A. Chaifetz School of Business

Bingguang Li

Shenandoah University - Harry F. Byrd, Jr. School of Business

Vanthuan Nguyen

Morgan State University

Robert A. Van Ness

University of Mississippi - Department of Finance

Abstract

Ellis, Michaely, and O'Hara (2000) find that trade classification rules have limited success in classifying trades executed inside the quotes. We reconfirm this result and propose an alternative algorithm to improve the classification accuracy for trades inside the quotes. This alternative algorithm improves the overall success rate for classifying trades, especially for trades that occur inside the quotes. Additionally, we show that the Lee and Ready (1991) and Ellis, Michaely, and O'Hara (2000) trade classification algorithms provide biased estimates of the actual effective spreads and price impacts, while our algorithm provides statistically unbiased estimates of actual effective spreads and price impacts.

Keywords: Trade classification, Lee and Ready algorithms, tick rule, quote rule

Suggested Citation

Chakrabarty, Bidisha and Li, Bingguang and Nguyen, Vanthuan and Van Ness, Robert A., Trade Classification Algorithms for Electronic Communications Network Trades. Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=958178

Bidisha Chakrabarty

Saint Louis University - Richard A. Chaifetz School of Business ( email )

3674 Lindell Blvd
St. Louis, MO MO 63108-3397
United States
3149773607 (Phone)
3149771479 (Fax)

HOME PAGE: http://business.slu.edu/departments/finance/faculty-staff/bidisha-chakrabarty

Bingguang Li

Shenandoah University - Harry F. Byrd, Jr. School of Business ( email )

1460 University Drive
Winchester, VA 22601
United States

Vanthuan Nguyen (Contact Author)

Morgan State University ( email )

School of Business and Management
1700 East Cold Spring Lane
Baltimore, MD 21251
United States

Robert A. Van Ness

University of Mississippi - Department of Finance ( email )

Oxford, MS 38677
United States

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