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Whose trades convey information? Evidence from a cross-section of traders

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  • Menkhoff, Lukas
  • Schmeling, Maik

Abstract

This paper contributes empirically to our understanding of informed traders. It analyzes traders' characteristics in an electronic limit order market via anonymous trader identities. We use six indicators of informed trading in a cross-sectional multivariate approach to identify traders with high price impact. More information is conveyed by those traders' trades who-simultaneously-use medium-sized orders (practice stealth trading), have large trading volume, are located in a financial center, trade early in the trading session, at times of wide spreads and when the order book is thin.

Suggested Citation

  • Menkhoff, Lukas & Schmeling, Maik, 2007. "Whose trades convey information? Evidence from a cross-section of traders," Hannover Economic Papers (HEP) dp-357, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    • Handle: RePEc:han:dpaper:dp-357
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    More about this item

    Keywords

    Market microstructure; informed trading; trade size; foreign exchange;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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