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Orders vs Trades: Price Effects and Size Measures
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David M. Walsh
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Abstract
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By examining the relationship between price changes and trade sizes, we can draw
conclusions on three issues. These are: (i) why order flow data is better than trade
data in testing for information content; (ii) the relationship between simple
permanent and temporary price effects and order size; and (iii) whether it is
possible to measure information asymmetry using a simple specification test. As a
subsidiary issue, we compare different order/trade size measures. We find: (i) orders
are clearly better measures than trades; (ii) both permanent and temporary price effects
are order-size-related; and (iii) it is possible to measure information asymmetry in
order flow in this way, and the ability to do so increases with trading volume. (An
alternative explanation for the last result is that it is purely driven by sample size.)
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Download this article.
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Keywords
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ORDERS VS TRADES; INFORMATION CONTENT; SPECIFICATION TEST.
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Contact Details
David M. Walsh
Department of Accounting and Finance
University of Western Australia
Nedlands WA 6907
E-mail: dwalsh@ecel.uwa.edu.au
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The author wishes to thank K.R. Sawyer, P. Brown, H.Y. Izan, K. Erickson, D. Allen,
an anonymous referee and the editor (Tom Smith) for helpful suggestions on
earlier drafts of this paper. However, I cannot blame them for errors; these
remain the fault of the author.
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