Journal ArticleDOI
How Stock Splits Affect Trading: A Microstructure Approach
TLDR
In this paper, the authors examined different hypotheses about stock splits and found that stock splits attract uninformed traders and that informed trading increases, resulting in no appreciable change in the information content of trades.Abstract:
Extending an empirical technique developed in Easley, Kiefer, and O'Hara (1996), (1997a), we examine different hypotheses about stock splits. In line with the trading range hypothesis, we find that stock splits attract uninformed traders. However, we also find that informed trading increases, resulting in no appreciable change in the information content of trades. Therefore, we do not find evidence consistent with the hypothesis that stock splits reduce information asymmetries. The optimal tick size hypothesis predicts that stock splits attract limit order trading and this enhances the execution quality of trades. While we find an increase in the number of executed limit orders, their effect is overshadowed by the increase in the costs of executing market orders due to the larger percentage spreads. On balance, the uninformed investors' overall trading costs rise after stock splits.read more
Citations
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Journal ArticleDOI
Is Information Risk a Determinant of Asset Returns
TL;DR: In this article, the authors investigated the role of information-based trading in affecting asset returns and showed that information does affect asset prices, and that a difference of 10 percentage points in the probability of information based trading between two stocks leads to a difference in their expected returns of 2.5 percent per year.
Journal ArticleDOI
Market microstructure: A survey
TL;DR: In this paper, the authors review the theoretical, empirical and experimental literature on market microstructure relating to: (1) price formation, including the dynamic process by which prices come to impound information, (2) market structure and design including the relation between price formation and trading protocols, (3) Transparency, the ability of market participants to observe information about the trading process, and (4) Applications to other areas ofnance including asset pricing, international "nance, and corporate "nance".
Journal ArticleDOI
Market Microstructure: A Survey
TL;DR: A detailed review of the theoretical, empirical and experimental literature on market microstructure with a special focus on informational issues relating to: (1) Price formation and price discovery, including both static issues such as the determinants of trading costs and dynamic issues such the process by which prices come to impound information over time, including the relation between price formation and trading protocols, especially the topic of market transparency as mentioned in this paper.
Posted Content
The Predictive Power of Zero Intelligence in Financial Markets
TL;DR: In this article, the authors use data from the London Stock Exchange to test a simple model in which zero intelligence agents place orders to trade at random, and yield simple laws relating order arrival rates to statistical properties of the market, and test the validity of these laws in explaining the cross-sectional variation for eleven stocks.
Journal ArticleDOI
Time-Varying Arrival Rates of Informed and Uninformed Trades
TL;DR: In this paper, the authors proposed a dynamic model of trade and estimate the model on 16 actively traded stocks on the New York Stock Exchange over 15 years of transaction data and investigated how the arrival rates of informed and uninformed trades vary over time, how they interact with each other, and what the implications are of the trade dynamics on the securities price processes such as market liquidity, depth, and volatility.
References
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Journal ArticleDOI
Bid, ask and transaction prices in a specialist market with heterogeneously informed traders
TL;DR: The presence of traders with superior information leads to a positive bid-ask spread even when the specialist is risk-neutral and makes zero expected profits as discussed by the authors, and the expectation of the average spread squared times volume is bounded by a number that is independent of insider activity.
Book
Applied nonparametric statistics
TL;DR: In this paper, applied nonparametric statistics are applied to the problem of applied non-parametric statistical data collection in the context of the application of applied NN statistics, including:
Book
Applied nonparametric statistics
TL;DR: In this article, applied nonparametric statistics are applied to the problem of applied non-parametric statistical data collection in the context of the application of applied NN statistics, including:
Journal ArticleDOI
Inferring Trade Direction from Intraday Data
Charles M.C. Lee,Mark J. Ready +1 more
TL;DR: In this paper, the authors evaluate alternative methods for classifying individual trades as market buy or market sell orders using intraday trade and quote data and identify two serious potential problems with this method, namely, that quotes are often recorded ahead of the trade that triggered them and that trades inside the spread are not readily classifiable.