An Investigation of Trades That Move the BBO Using Strings

Ying Huang (), Bill Hu, Hong Chao Zeng and Matthew D. Hill
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Ying Huang: Department of Economics, Finance and Real Estate, Mitchell College of Business, University of South Alabama, 5811 USA Drive South, Mobile, AL 36688, USA
Bill Hu: Department of Finance and International Business, School of Business, Howard University, 2600 6th St NW., Washington, DC 20059, USA
Hong Chao Zeng: The College of Business, University of Nevada, Reno, NV 89557, USA
Matthew D. Hill: Neil Griffin College of Business, Arkansas State University, Jonesboro, AR 72467, USA

JRFM, 2025, vol. 18, issue 1, 1-13

Abstract: We investigate the common movement and information content of trades at steps away from the best bid and offer (BBO) using Tokyo Stock Exchange data. We create strings, a series of trades at the same or at an inferior price. The number of the strings is invariant for securities across trading days. The number of shares traded during a string and the time needed for the completion of a string are also significantly related across days for a given stock. The strings represent liquidity beyond the BBO. In addition, the strings characterize the price adjustment process in which we relate to the information on the underlying asset value. The strings measure order aggressiveness beyond the BBO. Finally, we show that the return for the strings is significantly related to the state of the limit order book at the start of the string. Thus, traders can infer information using strings to achieve higher returns.

Keywords: liquidity; commonality; BBO; information content (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2025
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