The accuracy of trade classification rules for the Warsaw Stock Exchange

Paweł Miłobędzki , Sabina Nowak

Abstract

We evaluate the accuracy of five trade classification rules for the Warsaw Stock Exchange: tick, reverse tick, quote, Lee and Ready and Ellis, Michaely and O’Hara. In doing so we use the transaction data on stocks from the large cap WIG20 index from the period May-September 2017. We find that the quote rule correctly classifies 100% of transactions initiated by buyers and sellers. Almost the same excellent job does the Lee and Ready rule. The Ellis, Michaely and O’Hara rule is less successful albeit its success rate exceeds 95% of the transactions assigned to both sides. The tick and the reverse tick rules exhibit a very low accuracy. The tick rule correctly classifies only 25.35% of transactions initiated by buyers and 25.95% of transactions initiated by sellers. The reverse tick rule performs even worse classifying as much as 16.66% and 16.67% of such transactions accord-ingly. The reason for their low accuracy is that the stock prices remain unchanged at the WSE at about 70% of all transactions. We also show that in case both classification rules are modified to account for either the preced-ing or the following transactions price changes their accuracy significantly increases.
Author Paweł Miłobędzki KE
Paweł Miłobędzki,,
- Department of Econometrics
, Sabina Nowak KE
Sabina Nowak,,
- Department of Econometrics
Pages316-325
Publication size in sheets0.59
Book Papież Monika, Śmiech Sławomir (eds.): The 12th Professor Aleksander Zelias International Conference on Modelling and Forecasting of Socio-Economic Phenomena : conference proceedings, Socio-Economic Modelling and Forecasting, no. 1, 2018, Foundation of the Cracow University of Economics, ISBN 978-83-65907-20-2, 611 p., DOI:10.14659/SEMF.2018.01
Keywords in Englishaccuracy of trade classification rules, market microstructure, Warsaw Stock Exchange
DOIDOI:10.14659/SEMF.2018.01.32
URL http://semf.pl/semf_1/pdf/Milobedzki_Nowak.pdf
Languageen angielski
LicensePublisher website (books and chapters only); published final; Uznanie Autorstwa (CC-BY); with publication
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