Intraday Stealth Trading: Which Trades Move Prices During Periods of High Volume?

Abstract

Research documents a U-shaped intraday pattern of returns (Wood et al., 1985, and Harris, 1986). This paper examines which trade sizes drive the U-shaped pattern. We find that intraday price changes from larger trades exhibit a U-shaped pattern while prices changes from smaller trades show a reverse U-shaped pattern. We argue that price changes from smaller trades are higher during the middle of the day because informed investors break up their trades in order to disguise their information (Barclay and Warner, 1993) when intraday volume is low. Price changes from larger trades are likely higher at the beginning and end of the day because high volume allows informed investors to increase their trade size without revealing their information to the market (Admati and Pfleiderer, 1988). Consistent with our argument, we find that the relation between volume and price changes is increasing across trade sizes.

Keywords: Stealth Trading, intraday, volume, trade size