of

230

J.

brou& Trudes, quotes, inventories, and information

J. Hasbrouck, Trades, quotes, inventories, and injormatioia

d tentative conclusions.

ccxsiderations. For the asymmet

2Stolll(1987) has recently

of quote changes. Asi
different from the present txne.
more
he,.
revisions.
rion

231

2.1.

etric-i

J.

253

234

are i.i.

J. Ha&o&,

Trades, quotes, inventoriesl,and information

variables.

resulting trade series is given by

(4)
sturbace

tcms.

extent of trade reve

ntory stationarity does

etric-infomation effects.
s used in the quote revision expression (3),

J.

brouck, Trades, quotes, inventories,

and i

ute revisiurks is mure

rr=bgE,+bl&I_1+b*&,_2+ .-= +v,,

tion

235

236

J. Hasbrouck, Trades, quotes, inventories, and information

ce of transient

revisions assumes that asymmetrbinformat

pact of trades on quote

and inventory-control effects

problems may upset this resolution of

interpret the persistent
bi) as the information
tied i.nWactions with inventory
inventory level is stationary, inven~oiy
trades in the remote past should

bro&, Trades, quotes, inventories, and i

tion

238

J. Hasbrouck, Xwf2s, quotes,inventories, and informdon

tional errors. w autocorrelations of ( tr} and those of (x,} are then related
by a simpk 70: xtionality constant.9
f inventorby-csatrol e&cts are present, at least one of
ts in the dealer trade (x,) representation must
autocorrelations must be negative. Since the au
to those for the dealer
for the observed t
observed trades

novatio~ reveal, 3s measured

public hit
orders at
t price. This increases

are viewed as originating from

in the trade innovations,

be correhed imperfectiy with tkz

trades. The existence of public limit orders is therefore likely to
reduce the apparent role of inventory contr 01.

ata set is a t
1985 and consists of

and April of
on records.0

9De~lote by uj? the varimw of the (x, > process; the autocovtia9ce 22 2s .k ic !r!?2:c2 L
y&I) = E-x,x,_, and k e autocorrelation at lag k is defined as p,(k) = y,(k)/b,z. 02, u:, y,(k),
and
similarly. It is apparent from (8) that 6,2= c$-+ az and r,( k >= y, (k ) for
k>
c3,( k ; = Xpx(k$, where the proportionality factor X is u:/( d,z + uz) s 1. That is,
the
rrelation function for the observed trades Wproportional to that of the trades that clear
e relative importance of market-mak
e data were &kztcd by a firm
der contract t@ tie
SCC

J. Hasbrouck, Trades, quotes, inventories, and info~~tio~

offthe

23

relevant

human invdvexnent

five

It

is not

UncoInmun,

example, the specialist may satisfy a I,

group.

this ocewrs, the event

sort events occu

to ten

sex43

240

J. Hasbrouck,Trades,quoted,mventories,andinformation
Table 1

Classification of transactions as buys and sells for NYSlSlisted stocks in March and April of 1985.
The reported values are the proportion of transactions and proportion of trade volume classified
as buy or sell king the indicated rule. Classifications made by the preceding quote are those in
which the trmsaction price is at or outside the prevailing bid or ask. The rem&g
rules deal with
cases in which the reported transaction price 5 between the prevailiug quotes. Using the
contemporaneous transaction rule, when a midpoint transaction is found to be contemporaneous
tim at a quote, the
mnsaction mle,
tP
te
transaction, the order type is infened from the direction of the quote revision,
I%qMxtion of
Buy or sell

class&&tion rule

subsequent
transaction
Subsequent
quote revision
Subsequent
quote revision
.-_

ZWtiOm

0.392

0.402
0.457
0.001

0.042

0.031

0.038

0.029

0.032

C.030

0.034

0.036

0.017

0.013

here is one of a market-maker who

rs who trade against these quotes. In
as a buy or sell order by reference to the current
that can be classified in
trades and trading
nt data set is reporte
table 1. Roughly 85%of the
transactions can be SOclassified.

J. Hasbrouck, Trades, qwtes, inwztories, and infomuhon

rial: there is no effect 0

inferred from two ofk

r benefits from con

sity io trade.
no clear-cut rules help the
cases some considerations offer p
tiWs in
crude ruies are d
are report4 in table 1.
AhhO

1. Contemportithwds lhnsuction.

transaction occurs it
with the remainder being
therefore, when ZA
midpoint
transaction at a quote price, the buy/
to the former.
pit

2. Subsequent Trmmction.

When a transaction at a p
a midpoint transaction, but before a quote revision, the
the defacto quote. or example, if the c
t
and a midpoint
20: (a buv),
S then 20;
transaction is co

point transaction the order

241

242

J. Hasbruuck, Trades, quotes, inventories, and injormation

ation that the seller is UIW

revision.
ssitating an upw

g to meet the currently

J. PJasbrirucJic,
Trades, quotes9~noe~tor~es,and i

-1

I-I---

Fig. 1. Trade autocorrelations for vol

the mean

J. Hasbrouck, Trades2quotes, inventories, and information

244

Table 2
&ng-average

models of observed trades for NYSE-list4

stocks in

March

This table summarizes estimations of the

2f = E*+ t&1 + 8,E*_2+ - transaction t and N is
is the ctbserved trade
ecile (for which N = 1 . The coeficient sums
on autocorrelation ss*timates
met!& of moments b
on t e volume as measured by the n
are deciles b

April of 1985.

ad

r of transactions.

Sample
All stocks
Vohme decile 1

1.12
0.19
- 0.25
0.53
0.72
085
3.93
1.03
1
1
1.30

\tv OlUUlC
L.-A
Aa,:
d
UC%1 k3
Vohme de&e 8
Volume decile 9
Volume decile PO

1.002
1
1
1
1
1
1
1
1
1
1

P-m

cnts quadratic

in i

on

fik

inte

ovingawage

Variables

ez
8;

6S-10

e11-U

d26-U)
e51e 101
e 151
i +ce,

coeflicient es

J. Hasbrouck, Trades, quotes, inventories, and information

as the sum of the individual log-likelihoods. The

e negative cmelation in trades partly

a...,

2z
9

q**.9

.I. Kzdkouck., Trw?cs,quotes, inventories, and information

248

-0054
.

_ _.._1
0

~-~---~.T--
25

50

T__..-_-T._
75

100

125

YS r -

-_*- r. -7

150

175

200

1.ag (TronsQctions)
Fig. 2. Tsdc

idk~~~~ imovatim metkknts for the second volume d&e

stocks in March and April of 1985.

for WSE4isted

qe figureploti the b8coeficients from the OLS estimation of

Q,-&qf+bl?$

. 8-1 +&q,,_J+

, j=l,...,
150,
for t=l*...*
.
is the number of tramastions
!cxk j at transaction t and
innovations in the trad dicator series. Both 5r and
eir respective standard deviations estimated fur st
fixed ranges to lie on second-order polynomials.

.* +b$

f_HW)+Ujf

act

of trades

at

low lags is

J. Hdkouck,

Trades, quotes, irtuentories,and information

autocorrdations s

assist in the interpretation of

9
=

o+
i=O

i-0

250

J. Hasbrouck, Trades, quotes, inventories, and information

Table 4
Quote revision estimation for American Information Technology in March and April of 1985.
The estimated specification is
9

r, = a0 +

biq-i +

where 5 IS the quote revision at transaction J,

if a sell), $ is the signed logarithm oi the

ciS;-i + 1J*

is an

S
-_o
SE

Coefitiat

0.0012
0.0012
0.0012

0.0012

CO
Cl
c2
c3
c4
c5
%
C?
Q
c9
Xbi

0.015s

0.0031

Q4

0.0098

C.!xP

ates for a representative stock, Ameri-

e initd

impact, but the net

J. Hasbrouck, Trades, quotes, inventories, arrd information

from the transien

information.

on inventoycontrol effects.
statistical power of
information.

251

ent order-size &kct on quote r

the view that llarge orders convey more

252

J. Hasbrouck, Trades, quotes, inventories, and information

.I? and Gwilym M. Jenkins, 1976, Time series analysis: Forecasting and control

Cohen, Kalmaol J., Steven F. Maier, Robert A. Schwartz, and David

, trade size, and information in

Journal of Business,

quote behavior and the return

ometrica 53,1315-1336.

conomics of market making, Journal

measure of the bid ask spre:Z in an efficient market,