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See detailThe informational effect and market quality impact of upstairs trading and fleeting orders on the Australian Securities Exchange
Rose, Annica UL

in Journal of Empirical Finance (2014), 28

This paper investigates the informational effect of trading and market segmentation on the Australian Securities Exchange (ASX) paying particular attention to the recent phenomenon: fleeting orders.1 ... [more ▼]

This paper investigates the informational effect of trading and market segmentation on the Australian Securities Exchange (ASX) paying particular attention to the recent phenomenon: fleeting orders.1 Confirming theoretical predictions, this study finds that permanent price effect (PPE) is significantly greater in the central limit order book (LOB) than in the upstairs market and that less informed institutional trades are routed to the upstairs market. It also finds that a well functioning upstairs market often results in lower transaction cost, higher volatility and larger trade size on the ASX. In the context of fleeting orders specifically, it finds the informational effect and market quality impact of upstairs market to be weaker after removing fleeting orders, which subsequently leads to the conclusion that recently introduced execution algorithms, which leave a trace of fleeting orders, often result in lower PPE and are mostly used my uninformed liquidity traders. [less ▲]

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See detailSystematic Trading Behavior and the Cross-Section of Stock Returns on the OMXH
Leung, Henry; Rose, Annica UL; Westerholm, P. Joakim

in Review of Finance (2014), 18(6), 2325-2374

Signed small trade turnover (SSTT) measures temporary uninformed buy or sell pressure that is initiated by small trades in the same direction. Using Nasdaq OMX Helsinki tick-by-tick trade data with known ... [more ▼]

Signed small trade turnover (SSTT) measures temporary uninformed buy or sell pressure that is initiated by small trades in the same direction. Using Nasdaq OMX Helsinki tick-by-tick trade data with known investor category, we confirm that SSTT is a robust proxy for uninformed trading. In the short term (1–3 months), stocks with a high proportion of signed small trades outperform, but in the medium (4–6 months) and long term (7–36 months), SSTT by individual investors has a negative correlation to stock returns, while SSTT by institutional investors and foreign nominees is not related to stock returns. Systematic trading behavior appears to better explain the excess return generated by the low SSTT portfolio relative to the high SSTT portfolio when compared to traditional risk factors in the CAPM and Fama-French models. In the aggregate, small trades are noise in the spirit of Kyle (1985) and Black (1986), but small trade behavior impacts the performance of individuals and not the performance of institutions. Large trades by both individuals and institutions perform better in the intermediate and long term, which lends some credibility to the practice of classifying larger trades as informed, but our results show that these trades are not always by institutions. [less ▲]

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See detailSystematic trading behaviour and its informational effect: evidence from the OMXH
Rose, Annica UL

in Applied Financial Economics (2014), 24(22), 1421-1427

By using signed small trade turnover (SSTT) as a proxy of investors’ systematic trading behaviour and permanent price effect (PPE) as a proxy for informed trading, this article investigates the short-term ... [more ▼]

By using signed small trade turnover (SSTT) as a proxy of investors’ systematic trading behaviour and permanent price effect (PPE) as a proxy for informed trading, this article investigates the short-term outperformance of high SSTT stocks for categories of investors on the NASDAQ OMX Helsinki (OMXH) and whether the outperformance is best understood in the context of investor trading behaviour or informed trading. This study finds that the trading of high SSTT stocks is associated with a lower PPE than the trading of low SSTT stocks, which implies that the trading of high SSTT stocks is less informed than the trading of low SSTT stocks, and that the short-term outperformance of high SSTT stocks relative to low SSTT stocks is best explained within the behavioural finance framework, that is, by investors’ bias towards popular stocks proxied by SSTT, and not within the rational framework, that is, by informed trading proxied by the PPE. These findings are economically and statistically significant for all types of investors. [less ▲]

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