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Market sidedness: insights into motives for trade initiation

  • Asani Sarkar
  • Robert A. Schwartz

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.

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Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 292.

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Date of creation: 2007
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Handle: RePEc:fip:fednsr:292
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