Market Sidedness: Insights into Motives for Trade Initiation

Robert A. Schwartz, Asani Sarkar
2007 Social Science Research Network  
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more » ... von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. 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 buyerand 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. Finance 59, 1201-1233. Grundy, Bruce D., and Maureen McNichols, 1990, Trade and the revelation of information through prices and direct disclosure, Review of Financial Studies 2, 495-526. Hall, Tony, and Nikolaus Hautsch, 2004, A continuous time measurement of the buy-sell pressure in a limit order book market, Working paper, University of Copenhagen. Harris, Milton, and Artur Raviv, 1993, Differences of opinion make a horse race, Review of Financial Studies 6, 473-506. Hasbrouck, Joel, 1991, Measuring the information content of stock trades, Journal of Finance 46, 179-207. He, Hua, and Jiang Wang, 1995, Differential information and dynamic behavior of stock trading volume, Review of Financial Studies 8, 919-972. Hong, Harrison, and Jeremy C. Stein, 2003, Differences of opinion, short-sales constraints, 44 and market crashes, Review of Financial Studies 16, 487-525.
doi:10.2139/ssrn.972707 fatcat:mbtjyamlyfd6naqli5x5iyfltm