Faculty of Economics and Business Administration Publications Database

Whose Trades Convey Information? Evidence from a Cross-Section of Traders

Authors:
Menkhoff, Lukas
Source:
Volume: 13
Number: 1
Pages: 101 - 128
Month: February
ISSN-Print: 1386-4181
Link External Source: Online Version
Year: 2010
Keywords: Market microstructure; Informed trading; Trade size; Foreign exchange
Abstract:

This paper contributes empirically to our understanding of informed traders. It analyzes traders’ characteristics in a foreign exchange electronic limit order market via anonymous trader identities. We use six indicators of informed trading in a cross-sectional multivariate approach to identify traders with high price impact. More information is conveyed by those traders’ trades which—simultaneously—use medium-sized orders (practice stealth trading), have large trading volume, are located in a financial center, trade early in the trading session, at times of wide spreads and when the order book is thin.

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