Rosenthal, Dale W.R. (2008): Modeling Trade Direction. Forthcoming in: Journal of Financial Econometrics
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I propose a modeling approach to classifying trades as buys or sells. Modeled classifications consider information strengths, microstructure effects, and classification correlations. I also propose estimators for quotes prevailing at trade time. Comparisons using 2,800 US stocks show modeled classifications are 1-2% more accurate than current methods across dates, sectors, and the spread. For Nasdaq and NYSE stocks, 1% and 1.3% of improvement comes from using information strengths; 0.9% and 0.7% of improvement comes from estimating quotes. I find evidence past studies used unclean data and indications of short-term price predictability. The method may help detect destabilizing order flow.
|Item Type:||MPRA Paper|
|Original Title:||Modeling Trade Direction|
|Keywords:||trade classification; delay models; trade publishing delays; prevailing quotes; trade direction; flash crash detection|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency; Event Studies
C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C53 - Forecasting and Prediction Methods; Simulation Methods
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information; Mechanism Design
|Depositing User:||Dale W.R. Rosenthal|
|Date Deposited:||08. Aug 2012 08:31|
|Last Modified:||02. Mar 2013 14:57|
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