Abstract
For the highly traded S&P 500 exchange traded fund SPY, we find that, over time, transaction size has been decreasing while the number of consecutive buy or sell transactions has been increasing due to the increased prevalence of high frequency trading and order splitting. Collapsing sequences of buy or sell transactions into single transactions produces a time series that has a time-stationary distribution and is more tractable for empirical market microstructure models. If sequences are not collapsed, measures of illiquidity are underestimated, implying that increased high-frequency trading may not necessarily be associated with improved liquidity.
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