The Market Inside the Market: Odd-Lot Quotes

Authors

Robert P. Bartlett, Stanford Law School
Justin McCrary, Columbia Law SchoolFollow
Maureen O'Hara, Cornell University Johnson College of Business

Document Type

Article

Publication Date

2023

DOI

https://doi.org/10.1093/rfs/hhad074

Abstract

We show current market practices relating to odd-lot quotes create a large “inside” market where better prices routinely exist relative to the National Best Bid or Offer. We show that odd-lot quotes play a price discovery role, and these quotes provide valuable information to traders with access to proprietary data feeds. Using a XGBoost machine learning algorithm that uses odd-lot data to predict future prices, we demonstrate a simple and profitable trading strategy. We argue the SEC’s proposed round-lot redefinition reduces — but does not eliminate — the high incidence of superior odd-lot quotes within the NBBO.

Disciplines

Banking and Finance Law | Law | Securities Law

Recommended Citation

Robert P. Bartlett, Justin McCrary & Maureen O'Hara, The Market Inside the Market: Odd-Lot Quotes, Rev. Fin. Stud. (2023).
Available at: https://scholarship.law.columbia.edu/faculty_scholarship/4176