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The Determinants of Average Trade Size

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  • Brennan, Michael J
  • Subrahmanyam, Avanidhar

Abstract

A central, but largely untested, assumption in the modern literature on financial markets is that investors trade strategically, taking account of the effect of their trades on prices. The authors use a simultaneous equations approach motivated by theoretical analysis to test this assumption empirically. The results point to a strong and negative cross-sectional relation between the average trade size and estimated fixed and variable costs of transacting per share, consistent with strategic trading. The authors also find that average trade size is positively related to return volatility, the standard deviation of trading volume, and the proportion of shares held by institutional investors. Copyright 1998 by University of Chicago Press.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Business.

Volume (Year): 71 (1998)
Issue (Month): 1 (January)
Pages: 1-25

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Handle: RePEc:ucp:jnlbus:v:71:y:1998:i:1:p:1-25

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Web page: http://www.journals.uchicago.edu/JB/

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Cited by:
  1. Ke, Bin & Ramalingegowda, Santhosh, 2005. "Do institutional investors exploit the post-earnings announcement drift?," Journal of Accounting and Economics, Elsevier, vol. 39(1), pages 25-53, February.
  2. Sara Castellanos, 2001. "A New Empirical Study of the Mexican Treasury Securities Primary Auctions: Is there more underpricing?," Levine's Working Paper Archive 625018000000000206, David K. Levine.
  3. Bardos, Katsiaryna Salavei, 2011. "Quality of financial information and liquidity," Review of Financial Economics, Elsevier, vol. 20(2), pages 49-62, May.
  4. Sugato Chakravarty & Asani Sarkar & Lifan Wu, 1998. "Estimating the adverse selection and fixed costs of trading in markets with multiple informed traders," Research Paper 9814, Federal Reserve Bank of New York.
  5. Chris Downing & Frank Zhang, 2002. "Trading activity and price volatility in the municipal bond market," Finance and Economics Discussion Series 2002-39, Board of Governors of the Federal Reserve System (U.S.).
  6. Chordia, Tarun & Roll, Richard & Subrahmanyam, Avanidhar, 2008. "Liquidity and market efficiency," Journal of Financial Economics, Elsevier, vol. 87(2), pages 249-268, February.
  7. C. Lucarelli & M. E. Bontempi & C. Mazzoli & A. G. Quaranta, 2009. "Pre-trade transparency on the Italian Stock Exchange: a trade size model on panel data," Working Papers 678, Dipartimento Scienze Economiche, Universita' di Bologna.
  8. Sara Castellanos, 2001. "Mexican treasury securities primary auctions," Theory workshop papers 357966000000000025, UCLA Department of Economics.
  9. Sugato Chakravarty & Asani Sarkar & Lifan Wu, 1997. "Estimating the adverse selection cost in markets with multiple informed traders," Research Paper 9713, Federal Reserve Bank of New York.
  10. Moulton, Pamela C., 2005. "You can't always get what you want: Trade-size clustering and quantity choice in liquidity," Journal of Financial Economics, Elsevier, vol. 78(1), pages 89-119, October.
  11. Alexander, Gordon J. & Peterson, Mark A., 2007. "An analysis of trade-size clustering and its relation to stealth trading," Journal of Financial Economics, Elsevier, vol. 84(2), pages 435-471, May.

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