“While this policy may have been sensible in the past, fragmentation, high-frequency trading, and the widespread use of algorithms have changed markets in fundamental ways,” the co- authors wrote. “Our results suggest that odd-lot trades have changed as well, and they now play a new, and far from irrelevant, role in the market.”
Odd lots are a “large and significant problem” for stocks with higher prices or less liquidity, the co-authors said. They called them the industry’s “missing trades” and said they should be introduced into the public transaction data.
The number of odd-lot trades has increased since 2008, when the data for their study began. The amount of traded shares going uncounted rose to 4.9 percent in the first 11 months of 2011, Ye said by phone. Computerized trading that breaks orders into smaller pieces to limit price moves is the main reason for the increase, he said.