A Liquidity Motivated Algorithm for Discerning Trade Direction

Michayluk, D; Prather, L

A Liquidity Motivated Algorithm for Discerning Trade Direction

Michayluk, D

Prather, L

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Publisher:: Multinational Finance Society
Publication Type:: Journal Article
Citation:: Multinational Finance Journal, 2008, 12 (1/2), pp. 45 - 66
Issue Date:: 2008-01

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Field	Value	Language
dc.contributor.author	Michayluk, D https://orcid.org/0000-0001-9020-0855	en_US
dc.contributor.author	Prather, L	en_US
dc.date.issued	2008-01	en_US
dc.identifier.citation	Multinational Finance Journal, 2008, 12 (1/2), pp. 45 - 66	en_US
dc.identifier.issn	1096-1879	en_US
dc.identifier.uri	http://hdl.handle.net/10453/10092
dc.description.abstract	Most exchanges do not report trade direction thus researchers and traders must deduce whether a trade is buyer or seller initiated since this information is required to evaluate models of bid-ask spread components and to understand the market for immediacy. Algorithms that assign trade direction based on the proximity to bid or ask quotes are easily implemented but ignore information readily discernable from orders, changes in the quoted depth and subsequent price movements. Using the New York Stock Exchange Trades, Orders and Quotes database, systematic biases in existing trade direction algorithms are documented that can be rectified by recognizing that the impact on liquidity is the fundamental characteristic underlying order placement. Although this liquidity-based method is difficult to implement, it more closely captures the actual behavior of market participants (JEL : G 10, G14)	en_US
dc.publisher	Multinational Finance Society	en_US
dc.relation.ispartof	Multinational Finance Journal	en_US
dc.title	A Liquidity Motivated Algorithm for Discerning Trade Direction	en_US
dc.type	Journal Article
utslib.citation.volume	1/2	en_US
utslib.citation.volume	12	en_US
utslib.for	150201 Finance	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Finance Discipline
utslib.copyright.status	closed_access
pubs.consider-herdc	true	en_US
pubs.issue	1/2	en_US
pubs.volume	12	en_US

Abstract:

Most exchanges do not report trade direction thus researchers and traders must deduce whether a trade is buyer or seller initiated since this information is required to evaluate models of bid-ask spread components and to understand the market for immediacy. Algorithms that assign trade direction based on the proximity to bid or ask quotes are easily implemented but ignore information readily discernable from orders, changes in the quoted depth and subsequent price movements. Using the New York Stock Exchange Trades, Orders and Quotes database, systematic biases in existing trade direction algorithms are documented that can be rectified by recognizing that the impact on liquidity is the fundamental characteristic underlying order placement. Although this liquidity-based method is difficult to implement, it more closely captures the actual behavior of market participants (JEL : G 10, G14)

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http://hdl.handle.net/10453/10092