Whose Trades Convey Information? Evidence from a Cross-Section of Traders

46 Pages Posted: 1 Mar 2007

See all articles by Lukas Menkhoff

Lukas Menkhoff

German Institute for Economic Research (DIW Berlin); Humboldt University of Berlin - Faculty of Economics

Maik Schmeling

Goethe University Frankfurt - Department of Finance; Centre for Economic Policy Research (CEPR)

Abstract

This paper contributes empirically to our understanding of informed traders. It analyzes trad-ers' characteristics in a foreign exchange electronic limit order market via anonymous trader identities. We use six indicators of informed trading in a cross-sectional multivariate approach to identify traders with high price impact. More information is conveyed by those traders' trades which - simultaneously - use medium-sized orders (practice stealth trading), have large trading volume, are located in a financial center, trade early in the trading session, at times of wide spreads and when the order book is thin.

Keywords: Market microstructure, informed trading, trade size, foreign exchange

JEL Classification: G12, G15, D82, F31

Suggested Citation

Menkhoff, Lukas and Schmeling, Maik, Whose Trades Convey Information? Evidence from a Cross-Section of Traders. Available at SSRN: https://ssrn.com/abstract=966091 or http://dx.doi.org/10.2139/ssrn.966091

Lukas Menkhoff (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

Humboldt University of Berlin - Faculty of Economics ( email )

Spandauer Strasse 1
Berlin
Germany

Maik Schmeling

Goethe University Frankfurt - Department of Finance ( email )

House of Finance
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, Hessen 60323
Germany

HOME PAGE: http://sites.google.com/site/maikschmeling/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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