As a researcher, my goal is to further our empirical understanding of the price discovery processes for financial securities at the market microstructure level.
This is quantitative finance at the interface between financial markets, cognitive psychology, decision sciences, and information technology.
As trading mechanisms have evolved considerably in recent years, this challenging field has seen a renewed interest from practitioners, regulators and academia.
I claim that uninformed traders prefer ending the size of their orders with a zero (e.g. 110 shares) but it is not the case for informed traders, creating an information channel and providing a signal. I propose the Last Digit Hypothesis (LDH): i) some traders exhibit a last digit preference for the digit 0 and other traders do not while ii) the latter are better able to trade on information than the former.
The LDH predicts that a trade arising from a marketable order with a size ending with a 0 on average contributes less to price discovery than other trades. My empirical findings support the LDH.
However, the LDH is not an equilibrium since informed traders have an incentive to mimic the preferences of uninformed traders to avoid detection and face little constraints or costs to do so. It is puzzling that I find no evidence of such mimicking. I offer plausible explanations for this finding.
Latest: Nasdaq OMX data visualization video (80MB download)
- 01/2016 Luxembourg School of Finance Seminar (Luxembourg)
- 07/2016 Sixth IMS-FIPS Workshop (Edmonton, Canada)
- 10/2016 PhD Consortium Colloquium 2016, RWTH University (Aachen, Germany)
- 01/2017 American Finance Association, 2017 Annual Meeting, PhD Poster Session (Chicago, United States)
- 05/2017 Society for Financial Studies, Cavalcade North America 2017 (Nashville, United States)
- 10/2017 Financial Management Association, 2017 Annual Meeting (Boston, United States)
- 11/2017 University of Alberta and University of Calgary Finance Conference 2017 (Lake Louise, Canada)
- 05/2018 Market Microstructure and High Frequency Data 2018, Stevanovitch Center of The University of Chicago (Chicago, United States)
Stealth Trading No More?
I carefully test the Stealth Trading Hypothesis (STH) using comprehensive datasets for the three largest European equity markets over 2002 to 2015, a period that saw trading moved into a new era.
Contrary to the extant literature and previous research, I find little support for the STH and, in fact, the commonality between these three distinct markets is the convergence over time of price discovery by trade size. It could be explained by improvements in market efficiency and/or more price discovery now going through resting limit orders.
However, I also find that previously used methodological choices introduce biases in favor of the STH, to such an extent that previous empirical findings in support of the STH might be spurious.
- 11/2016 Luxembourg School of Finance Seminar (Luxembourg)