The authors thank Sugato Chakravarty, Dave Denis, William Kross, workshop participants at Purdue and Syracuse Universities, and the referee, Thomas McInish, for helpful comments. Frank Heflin is on leave from Purdue University.
TRADE SIZE AND INFORMED TRADING: WHICH TRADES ARE “BIG”?
Article first published online: 2 FEB 2005
Journal of Financial Research
Volume 28, Issue 1, pages 133–163, March 2005
How to Cite
Heflin, F. and Shaw, K. W. (2005), TRADE SIZE AND INFORMED TRADING: WHICH TRADES ARE “BIG”?. Journal of Financial Research, 28: 133–163. doi: 10.1111/j.1475-6803.2005.00118.x
- Issue published online: 2 FEB 2005
- Article first published online: 2 FEB 2005
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 that 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 that a trade is informed.