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Round-number biases and informed trading in global markets

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  • Chen, Tao

Abstract

This paper investigates whether informed trading matters to round-number biases. We document the global presence of round-number biases by showing excessive buying (selling) pressure immediately below (above) a rounded threshold. Additionally, we demonstrate that trades surrounding 0-ending prices are likely to be initiated by informed traders who tend to buy (sell) at 9-ending (1-ending) prices. Moreover, small-sized (medium-sized) trades with 1-ending or 9-ending prices are revealed to be more informative and conducted persistently. Collectively, these findings seem to suggest that informed investors strategically engage in stealth trading by leveraging round-number biases of liquidity traders, which indirectly drives this anomaly in global markets.

Suggested Citation

  • Chen, Tao, 2018. "Round-number biases and informed trading in global markets," Journal of Business Research, Elsevier, vol. 92(C), pages 105-117.
    • Handle: RePEc:eee:jbrese:v:92:y:2018:i:c:p:105-117
    DOI: 10.1016/j.jbusres.2018.07.027
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    3. Donglian Ma & Hisashi Tanizaki, 2022. "Intraday patterns of price clustering in Bitcoin," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-25, December.
    4. Chen, Tao, 2019. "Trade-size clustering and price efficiency," Japan and the World Economy, Elsevier, vol. 49(C), pages 195-203.
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    6. Antonio, Fernando J. & Itami, Andreia S. & Dalmedico, Jônatas F. & Mendes, Renio S., 2022. "On the dynamics of reporting data: A case study of UFO sightings," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 603(C).
    7. Tao Chen, 2021. "Round‐number biases on trading time: Evidence from international markets," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 44(3), pages 469-495, September.

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    More about this item

    Keywords

    Round-number bias; Informed trading; Global market; Behavioral finance;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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