When is Inter-Transaction Time Informative?
We investigate the information content of inter-transaction time and find that it varies both
across stocks and over time. On average, inter-transaction time is found to be informative
whenever stocks are sufficiently traded. The magnitude of the information content is found to be
larger for less liquid, but still fairly actively traded stocks. In general, trades arriving quickly
move prices more than trades arriving more slowly. Further, the information content of intertransaction
time is negatively correlated with proxies for the amount of private information in the
trading of a particular stock. We then distinguish between trades in the same direction as the
previous trade from trades in the reverse direction and find that the price impact of a trade as
well as the information content of inter-transaction time is dependent on trade type. In general,
reversing trades are more informative. Further, same-direction trades arriving quickly move
prices more than same-direction trades arriving more slowly, but reversing trades arriving
quickly move prices less than reversing trades arriving more slowly.