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The Dynamics of Ex-ante Weighted Spread: An Empirical Analysis

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We include trade matchedness to Limit Order Book (LOB) as an extended identification dimension of High Price Impact Trades (HPITs). HPITs are trades associated with disproportionately large price changes in comparison with their volume proportion and are related to informed trades. We show that the introduction of matchedness provides finer informed trading identification, and we find that a stronger presence of HPITs leads to a decline in volatility due to more contrarian informed trades, but this decline varies with information environments. Finally, we conclude that HPITs mainly reflect belief-based (fundamental-based) information in a high (low) public disclosure environment.

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  • Dionne, Georges & Zhou, Xiaozhou, 2016. "The Dynamics of Ex-ante Weighted Spread: An Empirical Analysis," Working Papers 16-4, HEC Montreal, Canada Research Chair in Risk Management, revised 04 Nov 2019.
    • Handle: RePEc:ris:crcrmw:2016_004
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    More about this item

    Keywords

    Price efficiency; Price discovery; Limit Order Book; Trade size clustering; Stealth trading;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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