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Round-number biases and informed trading in global markets

Tao Chen ()

Journal of Business Research, 2018, vol. 92, issue C, 105-117

Abstract: This paper investigates whether informed trading matters to round-number biases. We document the global presence of round-number biases by showing excessive buying (selling) pressure immediately below (above) a rounded threshold. Additionally, we demonstrate that trades surrounding 0-ending prices are likely to be initiated by informed traders who tend to buy (sell) at 9-ending (1-ending) prices. Moreover, small-sized (medium-sized) trades with 1-ending or 9-ending prices are revealed to be more informative and conducted persistently. Collectively, these findings seem to suggest that informed investors strategically engage in stealth trading by leveraging round-number biases of liquidity traders, which indirectly drives this anomaly in global markets.

Keywords: Round-number bias; Informed trading; Global market; Behavioral finance (search for similar items in EconPapers)
JEL-codes: G02 G14 G15 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbrese:v:92:y:2018:i:c:p:105-117

DOI: 10.1016/j.jbusres.2018.07.027

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