Featured Research

from universities, journals, and other organizations

Millions of hidden share trades to be revealed

Date:
December 9, 2013
Source:
University of Warwick
Summary:
Millions of previously hidden US stock trades will be revealed for the first time on Monday December 9 thanks to research from a team of academics.

Millions of previously hidden US stock trades will be revealed for the first time on Monday December 9 thanks to research from a team of academics.

Previously odd lots, which are trades of less than 100 shares, have not been revealed on the publicly available 'consolidated tape', with only big investment banks and sophisticated computer-powered high-frequency traders paying to see them from individual exchanges. It was thought they were used only by small retail investors and so were not important.

But Chen Yao, of Warwick Business School, Maureen O'Hara, of Cornell University and Mao Ye, of University of Illinois, discovered that more and more big trades were being 'sliced and diced' to less than 100 shares so they remained hidden, leading to a 'two-tier market'. They found four per cent of the volume of shares traded were done as odd lots in 2009 and that had risen to 4.9 per cent in the summer of 2013. In some cases they found that 60 per cent of a stock's shares were traded as odd lots and so were hidden from the public transaction feed.

Thanks to their work US regulators have decided that all odd lots will be included in the publicly available 'consolidated data' so they will no longer be hidden. This is due to be implemented on Monday December 9.

Dr Yao, Assistant Professor of Finance at Warwick Business School, said: "This is a welcome move by the US exchanges. From Monday the markets will be more transparent and fairer for all.

"While leaving odd lots out of the public feed may have been sensible in the past, fragmentation, high-frequency trading, and the widespread use of algorithms have changed markets in fundamental ways.

"The results of our research suggest that odd-lot trades have changed as well, and they now play a new, and far from irrelevant, role in the market. We found a large fraction of trades are odd lots, which leads to significant inaccuracies in measures of volume. It will be interesting to see how the markets react when these odd lots are included; it is something we will be studying intently."

In their paper What's Not There: The Odd-Lot Bias in TAQ Data Dr Yao and her colleagues studied 120 stocks on the Nasdaq from 2008 to 2011 and found that the median fraction of missing odd lots was 24 per cent, but some stocks were missing more than 60 per cent of their trades.

Missing trades Algorithmic trading routinely slices and dices orders into smaller pieces, creating a new clientele of odd-lot traders," said Dr Yao. "The emergence of high-priced stocks such as Google or Apple, which have reached nearly $1,000 a share, results in odd lots constituting a significant fraction of trade for them. And the fact that odd lots are not reported to the 'tape' provides incentives for informed traders to transact via odd lots rather than use more visible trade sizes. Google, for example, had almost 31 per cent odd lot trades in 2008 and this had grown to 52.9 per cent by 2011. Amazon's odd lot trades went from approximately 22 per cent to 46 per cent of trades, while Apple's increased from 17 per cent to 38 per cent over this interval.

"We found odd lot trades represented 22 per cent of trades in December 2009, compared with 14 per cent in January 2008.

"In 2009 the volume of odd lot trades was four per cent; it was 2.3 per cent two years earlier. In June we estimated that had risen to 4.9 per cent."

Dr Yao argues the increasing problem of these "missing trades" is more significant for stocks with higher prices or less liquidity.

"Dividing a round lot into multiple trades may be the result of firms seeking to avoid reporting requirements and may come from those with more knowledge about future price movements," said Dr Yao. "Traders (or algorithms) appear to be splitting trades into odd-lot pieces, motivated perhaps by such trades' absence from the public 'consolidated tape'.

"We also find that odd-lot trades are more likely to be from high-frequency traders, evidence suggestive of the new patterns of trading in the market."


Story Source:

The above story is based on materials provided by University of Warwick. Note: Materials may be edited for content and length.


Journal Reference:

  1. Maureen O'Hara, Chen Yao and Mao Ye. What’s Not There: The Odd-Lot Bias in TAQ Data. Journal of Finance, 2014

Cite This Page:

University of Warwick. "Millions of hidden share trades to be revealed." ScienceDaily. ScienceDaily, 9 December 2013. <www.sciencedaily.com/releases/2013/12/131209090937.htm>.
University of Warwick. (2013, December 9). Millions of hidden share trades to be revealed. ScienceDaily. Retrieved April 17, 2014 from www.sciencedaily.com/releases/2013/12/131209090937.htm
University of Warwick. "Millions of hidden share trades to be revealed." ScienceDaily. www.sciencedaily.com/releases/2013/12/131209090937.htm (accessed April 17, 2014).

Share This



More Computers & Math News

Thursday, April 17, 2014

Featured Research

from universities, journals, and other organizations


Featured Videos

from AP, Reuters, AFP, and other news services

German Researchers Crack Samsung's Fingerprint Scanner

German Researchers Crack Samsung's Fingerprint Scanner

Newsy (Apr. 16, 2014) German researchers have used a fake fingerprint made from glue to bypass the fingerprint security system on Samsung's new Galaxy S5 smartphone. Video provided by Newsy
Powered by NewsLook.com
Twitter, Apple Social Data Purchases Likely to Spur More Mergers and Acquisitions

Twitter, Apple Social Data Purchases Likely to Spur More Mergers and Acquisitions

TheStreet (Apr. 16, 2014) The social media data space is likely to see more mergers and acquisitions following Twitter Inc.'s acquisition of tweet analyzer Gnip Inc. on Tuesday and Apples Inc.'s purchase of Topsy Labs Inc. back in December. One firm in particular, the U.K.'s DataSift Inc., could be on the list of potential buyers. Among other social media startups that could be ripe for picking is Banjo, whose mobile app provides aggregated content by topic and location. Banjo could also be a good fit for Twitter. Video provided by TheStreet
Powered by NewsLook.com
Bitcoin Exchange Mt. Gox to Liquidate After Rebuilding Rejected

Bitcoin Exchange Mt. Gox to Liquidate After Rebuilding Rejected

TheStreet (Apr. 16, 2014) Bitcoin exchange Mt. Gox has agreed to liquidate after a Japanese court rejected its plans to rebuild, according to a report by the Wall Street Journal. Mt. Gox filed for bankruptcy protection in February after announcing about 850,000 bitcoins, worth around $454 million at today's rates, may have been stolen by hackers. It has since recovered 200,000 of the missing bitcoins. The court put Mt. Gox's assets under a provisional administrator's control until bankruptcy proceedings begin. Video provided by TheStreet
Powered by NewsLook.com
BlackBerry: The Crash That Launched 1,000 Startups

BlackBerry: The Crash That Launched 1,000 Startups

Reuters - Business Video Online (Apr. 16, 2014) Tech startups in BlackBerry's hometown of Waterloo, Ontario, are tapping talent from the struggling smartphone company and filling the void left in the region by its meltdown. Reuters correspondent Euan Rocha visits the region that could become Canada's Silicon Valley. Video provided by Reuters
Powered by NewsLook.com

Search ScienceDaily

Number of stories in archives: 140,361

Find with keyword(s):
Enter a keyword or phrase to search ScienceDaily for related topics and research stories.

Save/Print:
Share:

Breaking News:
from the past week

In Other News

... from NewsDaily.com

Science News

Health News

Environment News

Technology News



Save/Print:
Share:

Free Subscriptions


Get the latest science news with ScienceDaily's free email newsletters, updated daily and weekly. Or view hourly updated newsfeeds in your RSS reader:

Get Social & Mobile


Keep up to date with the latest news from ScienceDaily via social networks and mobile apps:

Have Feedback?


Tell us what you think of ScienceDaily -- we welcome both positive and negative comments. Have any problems using the site? Questions?
Mobile: iPhone Android Web
Follow: Facebook Twitter Google+
Subscribe: RSS Feeds Email Newsletters
Latest Headlines Health & Medicine Mind & Brain Space & Time Matter & Energy Computers & Math Plants & Animals Earth & Climate Fossils & Ruins