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When is inter-transaction time informative?

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Author Info
Craig Furfine
Abstract

We investigate the information content of inter-transaction time and find that it varies both across stocks and over time. On average, inter-transaction time is found to be informative whenever stocks are sufficiently traded. The magnitude of the information content is found to be larger for less liquid, but still fairly actively traded stocks. In general, trades arriving quickly move prices more than trades arriving more slowly. Further, the information content of inter-transaction time is negatively correlated with proxies for the amount of private information in the trading of a particular stock. We then distinguish between trades in the same direction as the previous trade from trades in the reverse direction and find that the price impact of a trade as well as the information content of inter-transaction time is dependent on trade type. In general, reversing trades are more informative. Further, same-direction trades arriving quickly move prices more than same-direction trades arriving more slowly, but reversing trades arriving quickly move prices less than reversing trades arriving more slowly.

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Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-03-04.

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Date of creation: 2003
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Handle: RePEc:fip:fedhwp:wp-03-04

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Keywords: Stock exchanges ; Stock - Prices ; Stocks;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Spierdijk, L. & Nijman, T.E. & Soest, A.H.O., 2002. "The price impact of trades in illiquid stocks in periods of high and low market activity," Discussion Paper 29, Tilburg University, Center for Economic Research. [Downloadable!]
  2. Hasbrouck, Joel, 1991. " Measuring the Information Content of Stock Trades," Journal of Finance, American Finance Association, vol. 46(1), pages 179-207, March. [Downloadable!] (restricted)
  3. Glosten, Lawrence R. & Milgrom, Paul R., 1985. "Bid, ask and transaction prices in a specialist market with heterogeneously informed traders," Journal of Financial Economics, Elsevier, vol. 14(1), pages 71-100, March. [Downloadable!] (restricted)
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  4. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May. [Downloadable!] (restricted)
  5. Alfonso Dufour & Robert F. Engle, 2000. "Time and the Price Impact of a Trade," Journal of Finance, American Finance Association, vol. 55(6), pages 2467-2498, December. [Downloadable!] (restricted)
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  6. Jeffrey A. Frankel & Giampaolo Galli & Alberto Giovannini, 1996. "The Microstructure of Foreign Exchange Markets," NBER Books, National Bureau of Economic Research, Inc, number fran96-1.
  7. Easley, David & O'Hara, Maureen, 1992. " Time and the Process of Security Price Adjustment," Journal of Finance, American Finance Association, vol. 47(2), pages 576-605, June.
  8. Richard K. Lyons., 1995. "Foreign Exchange Volume: Sound and Fury Signifying Nothing?," Research Program in Finance Working Papers RPF-243, University of California at Berkeley.
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  9. David Easley & Robert F. Engle & Maureen O'Hara & Liuren Wu, 2002. "Time-Varying Arrival Rates of Informed and Uninformed Trades," Finance 0207017, EconWPA. [Downloadable!]
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  10. Lee, Charles M C & Ready, Mark J, 1991. " Inferring Trade Direction from Intraday Data," Journal of Finance, American Finance Association, vol. 46(2), pages 733-46, June. [Downloadable!] (restricted)
  11. Anat R. Admati, Paul Pfleiderer, 1988. "A Theory of Intraday Patterns: Volume and Price Variability," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 1(1), pages 3-40. [Downloadable!] (restricted)
  12. Liang Peng, 2001. "Trading Takes Time," Yale School of Management Working Papers ysm234, Yale School of Management. [Downloadable!]
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