Market Sidedness: Insights into Motives for Trade Initiation

56 Pages Posted: 20 Mar 2007  

Robert A. Schwartz

Baruch College - CUNY

Asani Sarkar

Federal Reserve Bank of New York

Date Written: July 2007

Abstract

We infer motives for trade initiation from market sidedness. We define trading as more two-sided (one-sided) if the correlation between the numbers of buyer- and seller-initiated trades increases (decreases), and assess changes in sidedness (relative to a control sample) around events that identify trade initiators. Consistent with asymmetric information, trading is more one-sided prior to merger news. Consistent with belief heterogeneity, trading is more two-sided before earnings and macro announcements with greater dispersions of analyst forecasts, and after news events with larger announcement surprises. A simultaneous equation system is used to examine the co-determinacy of sidedness, the bid-ask spread, volatility, the number of trades and the order imbalance.

Keywords: Trade initiation, sidedness, asymmetric information, heterogeneous beliefs, differential information, demand for immediacy, earnings, macroecnomic announcements, merger news

JEL Classification: G10, G14, D82, G34, M41, G29

Suggested Citation

Schwartz, Robert A. and Sarkar, Asani, Market Sidedness: Insights into Motives for Trade Initiation (July 2007). FRB of New York Staff Report No. 292. Available at SSRN: https://ssrn.com/abstract=972707 or http://dx.doi.org/10.2139/ssrn.972707

Robert A. Schwartz

Baruch College - CUNY ( email )

Zicklin School of Business
17 Lexington Avenue
New York, NY 10010
United States
646-312-3467 (Phone)
646-312-3530 (Fax)

Asani Sarkar (Contact Author)

Federal Reserve Bank of New York ( email )

Research Department
33 Liberty Street
New York, NY 10045
United States
212-720-8943 (Phone)
212-720-1582 (Fax)

HOME PAGE: http://www.newyorkfed.org/research/economists/sarkar/pub.html

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