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1-share orders and trades

Ryan L. Davis, Brian S. Roseman, Bonnie F. Van Ness and Robert Van Ness

Journal of Banking & Finance, 2017, vol. 75, issue C, 109-117

Abstract: 1-share trades are the most common odd lot trade size, accounting for 9.62% of all odd lot transactions and 3.65% of all trades on NASDAQ in 2012. While 50.41% of 1-share trades result from broken orders, 34.89% of 1-share trades are intentional. We provide substantial evidence that traders use 1-share trades to “ping” for hidden liquidity. In particular, our results indicate that 1-share trades are disproportionately aggressive and also execute against hidden liquidity more than any other odd lot trade size. We also find a relative increase in trading immediately following a 1-share trade. Our results are in line with Clark-Joseph (2014), who suggests that traders may use small, unprofitable trades to detect information from other traders. Specifically, 1-share trades represent the minimum cash outlay necessary to trade, while simultaneously producing the smallest possible effects on a market maker's inventory, and in turn, a security's price.

Keywords: Odd-lot; Trades; Orders; High frequency trading (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:eee:jbfina:v:75:y:2017:i:c:p:109-117