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Updating Traditional Trade Direction Algorithms With Liquidity Motivation, William Bertin, David Michayluk, Laurie Prather
Updating Traditional Trade Direction Algorithms With Liquidity Motivation, William Bertin, David Michayluk, Laurie Prather
Laurie Prather
Trade-direction algorithms play an important role in traditional studies of market microstructure and in understanding the market for immediacy. This paper examines the underlying definition of trade origination and proposes a new liquidity motivation (LM) method to classify individual trades using orders. This LM model represents a unique alternative to the traditional algorithms used in most microstructure research. Using the NYSE TORQ database, LM trade classifications are compared with traditional methods for classifying trade direction. We document systematic biases resulting from the conventional algorithms and provide an alternative liquidity-based classification method that captures the actual behavior of market participants.
Updating Traditional Trade Direction Algorithms With Liquidity Motivation, William J. Bertin, David Michayluk, Laurie Prather
Updating Traditional Trade Direction Algorithms With Liquidity Motivation, William J. Bertin, David Michayluk, Laurie Prather
Laurie Prather
Trade-direction algorithms play an important role in traditional studies of market microstructure and in understanding the market for immediacy. This paper examines the underlying definition of trade origination and proposes a new liquidity motivation (LM) method to classify individual trades using orders. This LM model represents a unique alternative to the traditional algorithms used in most microstructure research. Using the NYSE TORQ database, LM trade classifications are compared with traditional methods for classifying trade direction. We document systematic biases resulting from the conventional algorithms and provide an alternative liquidity-based classification method that captures the actual behavior of market participants.
Liquidity Issues Surrounding Neglected Firms, William Bertin, David Michayluk, Laurie Prather
Liquidity Issues Surrounding Neglected Firms, William Bertin, David Michayluk, Laurie Prather
Laurie Prather
The neglected firm effect is the phenomenon where stocks of less widely-known firms have larger returns than that predicted by asset pricing models. Researchers have found mitigating variables, such as the price of the stock, that have partially explained the performance of neglected firms. Neglect and price may be proxies for the liquidity of each firm's stock, and the higher observed returns may actually be a premium for the lack of liquidity. This paper compares two definitions of neglect and their relationship with liquidity. When neglect is measured by the number of analysts following a stock, more analysts are associated …