Report
Market sidedness: insights into motives for trade initiation
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 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.
Keywords: trading motives; sidedness; macro news; divergent beliefs; trade initiation; earnings news;
JEL Classification: G10; G34; G14;
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Bibliographic Information
Provider: Federal Reserve Bank of New York
Part of Series: Staff Reports
Publication Date: 2007-10-01
Number: 292
Pages: 70 pages
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.