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Trade Size And Informed Trading: Which Trades Are “Big”?

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  • Frank Heflin
  • Kenneth W. Shaw

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 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.

Suggested Citation

  • Frank Heflin & Kenneth W. Shaw, 2005. "Trade Size And Informed Trading: Which Trades Are “Big”?," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 28(1), pages 133-163, March.
    • Handle: RePEc:bla:jfnres:v:28:y:2005:i:1:p:133-163
    DOI: 10.1111/j.1475-6803.2005.00118.x
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    References listed on IDEAS

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    1. Kenneth A. Kavajecz, "undated". "A Specialist's Quoted Depth as a Strategic Choice Variable," Rodney L. White Center for Financial Research Working Papers 12-96, Wharton School Rodney L. White Center for Financial Research.
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    Cited by:

    1. McAdam, Chris, 2020. "Are investors compensated for their sophistication and informedness for company takeovers – An Australian study," Global Finance Journal, Elsevier, vol. 44(C).
    2. Aleksandr Yakovlevich Rubinstein, 2016. "Theory Of Patronized Goods. Liberal Evolution Of Paternalism," International Journal of Entrepreneurial Knowledge, Center for International Scientific Research of VSO and VSPP, vol. 4(1), pages 6-29, June.
    3. Wang, Zi-Mei & Chiao, Chaoshin & Chang, Ya-Ting, 2012. "Technical analyses and order submission behaviors: Evidence from an emerging market," International Review of Economics & Finance, Elsevier, vol. 24(C), pages 109-128.
    4. Frank Heflin & Kenneth W. Shaw & John J. Wild, 2007. "Disclosure policy and intraday spread patterns," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 6(3), pages 285-303, August.
    5. Acheson, Graeme G. & Coyle, Christopher & Turner, John D., 2018. "Prices and informed trading: Evidence from an early stock market," QUCEH Working Paper Series 2018-05, Queen's University Belfast, Queen's University Centre for Economic History.

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