Trade Informativeness in Modern Markets. Issue 1 (2nd January 2023)

• Record Type: Journal Article
• Authors: Nawn, Samarpan; Raizada, Gaurav
• Is Part Of: Financial analysts journal. Volume 79:Issue 1(2023)
• Page Start: 77
• Page End: 98
• Publication Date: 2023-01-02
• Subjects: algorithmic trading -- HFT -- informativeness -- institutional traders -- limit orders -- market orders; Investment analysis -- Periodicals; Investment analysis; HW_FM; Periodicals; Electronic journals; 332.6
• DOI: 10.1080/0015198X.2022.2126590
• Languages: English
• ISSNs: 0015-198X

Abstract

Abstract: Using transactions-based calendar time (TBCT) portfolio analysis, we investigate informativeness of trades of investor categories, namely institutions, proprietary traders, and retail clients. We find that trade informativeness is positive for institutional and negative for retail-client investors. The informativeness of liquidity-demanding trades are less than the informativeness of liquidity-supplying trades for all trading groups, over both long and short horizons. We also find that institutions are benefitted by algorithmic executions compared to manual executions and this benefit is elevated on days of high volume and volatility. Proprietary algorithmic traders (high-frequency traders) generate positive alpha for their trades only from their liquidity-supplying trades.