Whose Trades Convey Information? Evidence from a Cross-Section of Traders

Abstract

This paper contributes empirically to our understanding of informed traders. It analyzes trad-ers' characteristics in a foreign exchange electronic limit order market via anonymous trader identities. We use six indicators of informed trading in a cross-sectional multivariate approach to identify traders with high price impact. More information is conveyed by those traders' trades which - simultaneously - use medium-sized orders (practice stealth trading), have large trading volume, are located in a financial center, trade early in the trading session, at times of wide spreads and when the order book is thin.

Keywords: Market microstructure, informed trading, trade size, foreign exchange

JEL Classification: G12, G15, D82, F31