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A Direct Test of Methods for Inferring Trade Direction from Intra-Day Data

Thomas J. Finucane
The Journal of Financial and Quantitative Analysis
Vol. 35, No. 4 (Dec., 2000), pp. 553-576
DOI: 10.2307/2676255
Stable URL: http://www.jstor.org/stable/2676255
Page Count: 24
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
A Direct Test of Methods for Inferring Trade Direction from Intra-Day Data
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Abstract

This study directly tests the ability of several competing methods to identify market buy and sell orders using intra-day quote and trade prices, and identifies factors that affect the accuracy of the methods. Lee and Ready's (1991) algorithm performs about the same as the tick test, but the performance of both methods is worse than expected. The results show that the use of either algorithm to classify trades can lead to significantly biased estimates of effective spreads and signed volume, but the tick test provides better estimates of effective spreads and signed volume than Lee and Ready's method.

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