Trade signing in fast markets

Allen Carrion and Madhuparna Kolay

The Financial Review, 2020, vol. 55, issue 3, 385-404

Abstract: This study assesses the accuracy of trade signing algorithms in fast trading environments using NASDAQ and NYSE trade and quote data. Using data that contain true trade signs, we show that the Lee and Ready algorithm outperforms the tick rule and classifies trades at least as well as in earlier studies from slower trading environments, even in subsamples where the market is particularly fast. We conclude that trade signing remains viable in fast markets, and that the use of quote data continues to increase trade classification accuracy.

Date: 2020
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