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Market sidedness: insights into motives for trade initiation

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  • Asani Sarkar
  • Robert A. Schwartz

Abstract

In this paper, we infer motives for trade initiation from market sidedness. We define trading as more two-sided (one-sided) if the correlation between the numbers of buyer- and seller-initiated trades increases (decreases), and assess changes in sidedness (relative to a control sample) around events that identify trade initiators. Consistent with asymmetric information, trading is more one-sided prior to merger news. Consistent with belief heterogeneity, trading is more two-sided (1) before earnings and macro announcements with greater dispersions of analyst forecasts and (2) after earnings and macro news events with larger announcement surprises. A simultaneous equation system is used to examine the co-determinacy of sidedness, the bid-ask spread, volatility, the number of trades, and the order imbalance.

Suggested Citation

  • Asani Sarkar & Robert A. Schwartz, 2007. "Market sidedness: insights into motives for trade initiation," Staff Reports 292, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednsr:292
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    References listed on IDEAS

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    Cited by:

    1. Duarte, Jefferson & Young, Lance, 2009. "Why is PIN priced?," Journal of Financial Economics, Elsevier, vol. 91(2), pages 119-138, February.

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    Keywords

    Financial markets ; Stock market ; Corporate governance ; Human behavior;

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