Trades, quotes, inventories, and information

Abstract

This empirical examination of the relation between trades and quote revisions for New York Stock Exchange-listed stocks is designed to ascertain asymmetric-information and inventory-control effects. This study finds that negative autocorrelation in trades consistent with inventory-control behavior characterizes low-volume stocks, but not high-volume stocks. The evidence of inventory control in the impact of trades on quote revisions is inconclusive. The information content of trades, on the other hand, is found to be substantial. There is also strong evidence that large trades convey more information than small trades.