Trade-throughs: Empirical facts and application to lead-lag measures

Abstract

Order splitting is a well-known behavior in trading: traders constantly scan the limit order book and choose to limit the size of their orders to the quantity available at the best limit. Order splitting allows traders not to reveal their intention to the market so as not to move too much the price against them. In this note, we focus on the other trades, called trade-throughs, which are trades that go through the best available price in the order book. We provide various statistics on trade-throughs: their liquidity, their intraday distribution and the spread relaxation that follows them. We also present a new method to get empirical distributions of lead-lag parameters between assets, sectors or even markets. This empirical study is based on tick-by-tick data ofmajor EU and US equity futures from TRTH (Thomson Reuters Tick History) database. © Springer-Verlag Italia 2011.