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Market sidedness: insights into motives for trade initiation

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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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  • 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
    Note: For a published version of this report, see Asani Sarkar and Robert A. Schwartz, "Market Sidedness: Insights into Motives for Trade Initiation," Journal of Finance 64, no. 1 (February 2009): 375-423.
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    More about this item

    Keywords

    trading motives; sidedness; macro news; divergent beliefs; trade initiation; earnings news;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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