Order price clustering, size clustering, and stock price movements: Evidence from the Taiwan Stock Exchange

This paper examines order price clustering, size clustering, and stock price movements in an active emerging country’s equities market, the Taiwan Stock Exchange (TWSE). We first explore the relationships between investor types and order price/size clustering. Next, we investigate the joint determinants of the round-price and round-size orders based on daily and intraday data analyses. Finally, we look at the relationships among investor types, round prices/sizes, and stock price movements. The findings reveal that all investor types exhibit price and size clustering phenomena. After controlling for other factors, institutional investors have a relatively lower level of size clustering when compared with individuals. Our results confirm the price resolution hypothesis, whereby the levels of daily price and size clustering increase with firm risk, and the probability of a round-price or round-size order increases as transitory volatility rises. Partially consistent with the negotiation hypothesis, the probability of a round-price or round-size order increases when order competition turns fiercer. Mutual funds exhibit stronger quarter-end and session-end effects than do other investors. We also detect strategic trading behaviors, showing that the probability of an order with a tail price of one (nine) increases when buy (sell) order competition is fiercer. Lastly, stocks with mutual funds’ round-price or round-size buy (sell) orders experience rising (falling) future stock returns.