We find that executed sell limit orders cluster more frequently on round increments than buy limit orders and that this asymmetry in clustering is consistent with the well-documented asymmetry in price response to marketable orders.
In aggregate, executed sell limit orders cluster on round increments more often than executed buy limit orders. Consistent with extant literature, we find that marketable buy orders have higher price impacts than sell orders.
When prices are rising, the stock return is positive, sell limit orders placed on round increments execute more frequently than buy limit orders. Conversely, when prices are falling, the stock return is negative, buy limit orders priced on round numbers execute more often than sell limit orders.
Here, large quantities of clustered buy limit orders intersect with marketable sell orders, prolonging the stock's price decline.
Combining the price resolution hypothesis with this asymmetry in price impact, we propose that executed sell limit orders should cluster on round increments more frequently than executed buy limit orders.
Table II provides evidence that executed sell limit orders cluster on round pricing increments more frequently than executed buy limit orders across different price levels.
In Panel B of Figure 2, we report the results for executed buy limit orders and executed sell limit orders separately and find that the pattern holds for each trade direction.
Table II presented evidence that sell limit orders transact on round increments more than buy limit orders. Based on observations from Figures 1 to 3, one potential explanation for this clustering asymmetry is that equity prices generally increase over time.
We separate the data into executed buy limit orders versus executed sell limit orders and examine clustering frequencies during different market and firm states.
For instance, Panel B shows that sell limit orders execute on round increments 1.50 (0.71) percentage points more than buy limit orders during daily (15-minute) market return advances.
Finally, we find that sell limit orders trade at clustered prices more often than buy limit orders when market/firm prices are rising, while buy limit orders execute on round numbers more often than sell limit orders when market/firm prices are declining.
An important follow-up question is whether the direction of the price volatility affects buy limit orders and sell limit orders symmetrically.