Abstract
We show that equity trades are typically two-sided and cluster together in certain time intervals for both NYSE and Nasdaq stocks under a broad range of conditions - news and non-news days, different times of the day and trade sizes. By two-sided we mean that the arrivals of buyer-initiated and seller-initiated trades are correlated; by clustering we mean that trades tend to bunch together in certain intervals with greater frequency than would be expected if their arrivals were random. Controlling for order imbalance, number of trades, news, and other microstructure effects, we find that two-sided clustering is associated with higher volatility but lower trading costs. Our analysis has implications for trader behavior, market structure, and the process by which new information is incorporated into market prices.
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