. “Fed Reconsidering System of Weekly Money SupplyReports.” April 2, 1981. The article quotes then Fed Chairman Paul Volcker assaying:There is nearly unanimous agreement by all observers that weeklymoney statistics are extremely erratic and therefore poor indicators ofunderlying trends.The article also quoted Fed Chairman Volcker as saying:In general, there is considerable merit to the view that weekly data assuch convey little information and that weekly seasonal adjustments aresubject to substantial uncertainty.
CHAPTER 7 • PERIODIC ECONOMIC REPORTS21
225
Bradford Cornell. “Money Supply Announcements and Interest Rates: AnotherView.” Journal of Business, Volume 56, (1), 1983, pp. 1-23. In it, Cornell argues:[We are left] with no explanation of why the market participants react soviolently to short-term announcements. It hardly seems rational for aninvestor to adjust his long-run inflation expectations significantly on thebasis of 1 week’s announcement.
22
There is extensive evidence in the empirical economic literature that suggeststhat most conventional macroeconomic models of exchange rates are poor predictors of changes in exchange rates. Richard Lyons and Martin Evans argue thata model that includes order flow as an explanatory variable predicts changes inexchange rates better.
23
The nominal interest rate can be decomposed into a real rate component—the rate of interest in a world without inflation—and an expected inflationcomponent.
24
There is no Nobel Prize in economics. Instead, there is the Bank of SwedenPrize in Economic Sciences in Memory of Alfred Nobel.
25
Some economists contend that the central bank does not control the money supply, so its actions should have no immediate impact on interest rates. FisherBlack, co-developer of the Black-Scholes option pricing model and likelyco-recipient of the Nobel Prize in 1997 had he lived, would likely have arguedthat the central bank does not control the money supply and consequently anunexpected increase in the rate of growth of the money supply would have noeffect on a change in interest rates. The late James Tobin, who was awarded theNobel Prize in 1981 and was a proponent of the Keynesian New View, wouldlikely have argued that there is no effect as the money supply is too broad (giventhe existence of near-monies like savings accounts) to be controlled by the central bank. Professor Robert Mundell, an international economist who wasawarded the Nobel Prize in 1999, would likely argue that the answer depends onthe size and openness of the economy—with an absence of relationship in smallopen economies.
26
F. Black. “Noise.” Journal of Finance, Volume 41 (3), July 1986, pp. 528-550.
27
Michael Mackenzie. “Treasurys Close Higher Amid Continued Deflation Talk.”Dow Jones Business News, September 4, 2003.
28
The sensitivity of the 2-year Treasury note futures contract to changes in interestrates would be even smaller were its sensitivity not increased by its largernotional principal.
This page intentionally left blank
8SIZE MATTERS
“In telling this tale I attempt no compliment to my own sagacity. I claim not to have controlled events, but confess plainlythat events have controlled me.”—Abraham Lincoln1
Blood in the Water 1: Sumitomo IsLong and WrongOn Friday, May 17, 1996, London Metals Exchange (LME) copperfutures prices fell almost 5% in volatile trading before recoveringslightly.2 The proximate cause of the decline was unknown and manymarket observers were puzzled by it. However, some media accountsat the time attributed the price decline to rumors that Sumitomo and
227
228
TRADING CATALYSTS
other large copper market players were unwinding long positions andto rumors that Mr. Yasuo Hamanaka, Sumitomo’s long-time headcopper trader, was being reassigned to a nontrading position atSumitomo.3Supposedly, the rumors indicated that Sumitomo had decided tostop trading copper futures and would trade only physical copper inthe future.4 If true, it meant that Sumitomo’s massive long copperfutures positions would have to be liquidated. The rumor thatMr. Hamanaka was being reassigned only reinforced the notion thatSumitomo would be selling copper. The reason is that Mr. Hamanakawas widely known for his bullish views on copper; consequently, hisreassignment to a nontrading position at Sumitomo could mean onlyone thing: Sumitomo had substantial losses from copper trading. Thisinterpretation of the rumors swirling around the copper market thatday proved prescient as later developments would show.On Monday, May 20, 1996, a Sumitomo spokesperson confirmedthe rumor that Mr. Yasuo Hamanaka had been reassigned, but notedthat Mr. Hamanaka had been given more responsibility. Market participants did not buy this interpretation. As has been stressed repeatedly throughout this book, trading is a game. Participants have anincentive to disguise their true intentions from other market participants to avoid adversely affecting the value of their trading positions.Traders recognize the potential for conflicting incentives and maydiscount the public statements of other market participants accordingly. Sumitomo had an incentive not to make announcements thatwould adversely affect its widely known massive long copper futuresposition. On Monday, May 20, 1996, LME copper futures prices forJuly delivery fell another 5%.Notice that the factors driving the price decline were largelyinternal to the market—in this case, fear of massive selling by tradersattempting to exit long positions in copper. Sometimes, large pricechanges become trading catalysts in themselves. One reason for thisis that, at some point, traders who are losing money try to cut their
CHAPTER 8 • SIZE MATTERS
229
losses short by exiting their losing trading positions. The timing oftheir exit depends upon the losing traders’ willingness and ability totolerate losses. If other traders think they can push prices enough totrigger an exit by one or more key players, the implicit or explicitstop-loss orders that follow may push prices even further in the samedirection.Uncertainty over the exact cause or causes for the sharp declinesin copper futures prices increased market volatility. Although copperfutures prices bounced around, sometimes wildly, copper futuresprices largely continued their downward descent during May andJune of 1996. One factor driving the price declines were rumors ofmassive trading losses at Sumitomo. This meant that at some pointSumitomo might be forced to liquidate its massive long positions incopper, which would push prices down even further.On Monday, June 6, 1996, copper futures prices crashed. Thewild price action is captured in the following excerpt from an articleby Kenneth Gooding that appeared in the June 7, 1996 issue of theFinancial Times.Pandemonium broke out in the copper market yesterday asthe price…plummeted by 15% in two hours on the LondonMetal Exchange.Traders…said the combined scale and the speed of the dropwas unprecedented. Dealers increased the “spread” or difference between the prices at which they were willing to buy orsell to $50 a tonne—a level previously unheard of…At onepoint early yesterday, copper for delivery in three months onthe LME dropped to $1,910 a tonne, down $337 fromWednesday’s closing price. The price recovered to close…at$2,105 a tonne, $142 below Wednesday’s close…Traders suggested the rout was started on Wednesday by two US hedgefunds…The funds’ objective was to drive copper down tobelow $2,424 a tonne at which point…[traders] that hadgranted ‘put’ options…—or promised to buy copper…at acertain price—would have to start selling.5
230
TRADING CATALYSTS
The huge increase in the bid/ask spread (to $50 per tonne) showshow liquidity dries up in markets under stress. The preceding excerptalso illustrates some of the game-like characteristics of trading—namely, it illustrates how other large market participants were perceived to be selling copper futures in an attempt to force longs toliquidate their positions and those who sold put options to protectthemselves by selling copper futures. Of course, it is impossible todetermine whether the rumored involvement of the hedge fundsnamed in the preceding excerpt was real or imagined. Many instanceswhere the actions of certain hedge funds are rumored to be movingthe market are simply wrong. However, that misses the point. Tradersperceived the market moves as the result of the actions of largetraders and acted accordingly. The sharp changes in copper futuresprices are depicted in Figure 8.1.Another reason large price changes by themselves act as tradingcatalysts is the widespread knowledge that most sellers or writers ofoptions delta-hedge their option price risk exposure. Delta-hedging isthe financial market equivalent of just-in-time hedging. The delta ofan option represents how the price of an option changes when theprice of the underlying security changes. As noted earlier, the value ofdelta ranges from 0 to 1 for calls and between 0 and -1 for puts. Deltais also known as the hedge ratio. The absolute value of the delta of anoption can be thought of as akin to the probability of exercise.Large price changes will change the delta of the options written.In turn, this requires the option writer to sell futures to protect hisexposure to price risk for put options when the price of the underlying falls or buy futures to protect his exposure to the price risk forcall options when the price of the underlying rises. Either way, theadditional selling or buying pressure may reinforce the prevailingprice move.
5/17/96date.open 120.50date.high 123.80date.low 115.10date.close 115.60
CHAPTER 8 • SIZE MATTERS
128.00126.00124.00122.00120.00118.00116.00114.00112.00110.00108.00106.00104.00102.00100.0098.0096.0094.0092.0090.0088.0086.0084.0082.004/1/96
5/17/96
5/1/96
6/1/96
7/1/96
8/1/96
Daily trading range of NYMEX front month copper futures prices from April 1, 1996 to August 31, 1996.
FIGURE 8.1
“Not worth a copper”: The market suspects problems at Sumitomo.231
232
TRADING CATALYSTS
The sharp price declines in copper futures prices in May andJune of 1996 forced copper put option writers to sell more copperfutures contracts in order to remain delta-hedged.6 This increasedthe decline in copper futures prices. Later short-covering by fundsand the unwinding of previously acquired cover by option sellers hadthe opposite effect and caused futures prices to rise. All in all, theseactions created a very volatile market.7Again, price declines were exacerbated by factors internal to themarket; in this case, delta-hedging activity by organizations that hadsold put options on copper and short-covering as traders attempted totake profits from previously executed short sales of copper futures.On June 13, 1996, a Sumitomo official admitted that the firm hadabout $1.8 billion in copper trading losses.8 These losses wereincurred over a 10-year period through allegedly rogue trading by Mr.Hamanaka. Interestingly, Sumitomo claimed that it first found evidence of rogue trading on June 5, 1996, the day when copper futuresprices fell 15% in two hours.One common thread in many trading debacles is that the initialreported trading loss is too low. For instance, Orange County, California initially reported a loss of $1.5 billion in its investment pool onDecember 1, 1994. The loss was later revised up to $1.7 billion. Sumitomo’s initially reported copper trading losses were understated aswell. The final loss was raised to $2.6 billion. Some market rumorshad Sumitomo suffering a loss of $4 billion. Although that amountproved to be too high, market participants anticipated correctly continued downward pressure on copper futures prices and larger trading losses for Sumitomo.9The losses were blamed on rogue trading by Mr. Hamanaka whowas dismissed from Sumitomo and later arrested, charged with violating the law by Japanese authorities, tried, convicted, and imprisoned.It should be pointed out that Sumitomo’s trading activities were supposed to be limited to hedging. Classification as a hedger allowed
CHAPTER 8 • SIZE MATTERS
233
Sumitomo to circumvent restrictions on position size imposed onspeculators by the LME and other regulatory bodies.The delayed admission by Sumitomo that Mr. Hamanaka hadincurred massive trading losses for the firm became a trading catalystin itself. Copper futures prices fell in “panic selling” as traders fearedthat Sumitomo would sell more of its massive copper position.10 Theadmission of rogue trading by Sumitomo not only precipitated asharp decline in copper futures prices; it also led to an increase involatility that persisted for some time after the admission. This is yetanother example of how trading catalysts can be long-lived in theirinfluence on the level and volatility of commodity and financial market prices.Finally, it should be noted that Sumitomo, under Mr. Hamanaka’sdirection, was thought to be behind many attempted squeezes andother manipulations of the copper market in the past.11 On May 11,1998, the U.S. Commodity Futures Trading Commission (the federalgovernment agency that regulates futures markets in the UnitedStates) announced a settlement with Sumitomo over alleged pricemanipulation during 1995 and 1996. Sumitomo agreed to pay a $125million fine and $25 million in partial restitution to those injured bythe artificially high prices Sumitomo’s copper trading actions created.Sumitomo also agreed to pay the United Kingdom’s Financial ServicesAuthority $8 million. As with most such settlements, Sumitomo neither admitted nor denied that it had engaged in price manipulation.12
Blood in the Water 2: The YenSuddenly RisesOn Wednesday, October 7, 1998, the dollar fell sharply against theyen. It was a day of exceptional volatility in the dollar yen exchangerate. Much of the volatility occurred during Tokyo trading hours
234
TRADING CATALYSTS
when the foreign exchange market against the yen is most active andliquid. At one point, the dollar was down almost 12 yen or over 9.15%intraday.13 This is an incredible intraday move in a major currencyunder floating exchange rates. Wednesday’s rout came after the dollarfell earlier in the week and was followed by another decline in thedollar against the yen on Thursday. The dollar rebounded somewhatin a volatile trading session on Friday. Figure 8.2 depicts the sharprise in the yen on that day.What was the catalyst that precipitated the massive slide in thedollar and sharp increase in volatility? It was not a comment by apolitician or policymaker or intervention in the currency market bythe Bank of Japan. It was not a larger-than-expected forecast errorfrom an economic report. It was not a natural disaster or a geopolitical event. In fact, it was not fundamental news of any kind. Rather, itwas the unwinding of massive short yen and yen-carry positions byhedge funds and other market participants. Simply put, the attemptby key market participants to exit a formerly popular trade acted as acatalyst that stimulated a reaction by other market participants andresulted in a sharp decline in the dollar against the yen.Currency carry trades attempt to profit from interest rate differentials across countries with different currencies. Carry traders borrow the foreign currency in the low interest rate country (e.g. Japan)and invest the sums borrowed (exchanged, of course, into the domestic currency) in the higher interest rate country (e.g. the UnitedStates). When the investments mature, the domestic funds areexchanged into the foreign currency and used to repay the initialloan. If the exchange rate remains unchanged, the currency carrytrader picks up the yield differential between the two currencies.
148.00146.00
10/7/98date.open 130.33date.high 130.70date.low 119.20date.close 122.05
144.00142.00140.00
10/7/98
138.00136.00134.00132.00
CHAPTER 8 • SIZE MATTERS
150.00
130.00128.00126.00124.00122.00120.00118.00116.00114.00112.00110.008/3/98
9/3/98
10/3/98
11/3/98
12/3/98
Daily trading range of the yen/dollar exchange rate from August 1, 1998 to December 31, 1998.
FIGURE 8.2
The yen suddenly rises.235
236
TRADING CATALYSTS
For instance, suppose 100 yen equals US$1 and that the shortterm interest rate in Japan is 1%. Suppose further that the short-terminterest rate in the United States is 4%, while the long rate in the U.S.is 5%. Borrowing yen at 1% in Japan and exchanging the proceeds ofthe yen loan into dollars and investing at 4% in the Unites States provides the yen-carry trader with the opportunity to make an additional300 basis points if the exchange rate does not change. Many tradersattempt to maximize the interest rate differential by mismatching thematurities of the yen loans and dollar investments. Typically, funds areborrowed on a shorter-term basis than they are invested at. Thisallows traders to ride the yield curve as well (when the yield curveslopes upward)—that is, exploit the fact that if longer-term rates arehigher than shorter-term rates, a trader can profit from borrowing atlower short-term rates and investing at higher long-term rates.In the preceding example, the carry trader would borrow shortterm at 1% in Japan and invest for a longer term at 5% in the UnitedStates. This trade works well as long as the dollar does not fall againstthe yen or the yield differential reverses. The trade works even betterif the dollar rises against the yen or long rates fall after the carry traderhas put his position on. Keep in mind that the carry trader wouldmake an extra 300 (or 400) basis points if the two positions were heldfor a year (if interest and exchange rates remained unchanged). However, a significant fall in the value of the dollar against the yen couldeasily wipe out the profits associated with the carry trade in a shortperiod of time.The power of internal market catalysts to move markets is captured in the following excerpt from an October 9, 1998 news reportby Dow Jones Business News that discusses the large appreciation inthe yen during October 1998 and its likely cause.…The dollar began the week trading at 135 yen in Tokyo andfell as low as 111.73 yen Thursday…Friday the currencybounced around in a four-yen range in Asia, finishing the session at 116.90 yen, down from 119.45 yen in New York lateThursday…
CHAPTER 8 • SIZE MATTERS
237
It is widely believed that U.S. hedge funds sparked the dollarrout by rushing to unwind “yen-carry” positions, throughwhich they had borrowed yen at low interest rates to invest inhigh-yielding assets denominated in other currencies. Themassive shift in capital was aimed at taking profits.14Some background is in order to better appreciate the market conditions that prevailed during September and October 1998. Financialmarkets had just come off of a crisis precipitated by the near collapseof the hedge fund Long-Term Capital Management (LTCM) duringAugust and September of 1998. The financial market crisis wasaccompanied by dramatic changes in the prices of some of the tradingpositions that LTCM had on. Many market participants suspectedthat major hedge funds including Tiger Management, at the time thelargest hedge fund in the world with assets in excess of $20 billion,and LTCM had massive yen carry positions on. A sudden rally in theyen could set off a stampede by hedge funds for the exits.Often, a significant price break is preceded by smaller declines inprices. Such was the case here. The sharp slide in the foreignexchange value of the dollar in early October was preceded by a significant selloff in early September that was also attributed to unwinding activities by hedge funds. This is illustrated in the following storyreported by Reuters on Monday, September 7, 1998 (which was alsothe Labor Day holiday in the United States).Asian regional currencies extended early gains in thin trade asthe dollar lost over two yen on sales by U.S. hedge funds anda late surge in Tokyo stocks. The dollar lost over three yen ashedge funds aggressively unwound short yen positions…Senior Japanese Finance Ministry official Eisuke Sakakibarasaid on Monday that Japan and the U.S. were both concernedabout “excessive” yen weakness. Sakakibara said the yen’scorrection had just begun, and…that investors don’t realizethe risk of a yen rise.15
238
TRADING CATALYSTS
Mr. Sakakibara’s comment about investors not realizing the risk ofrise in the value of the yen proved more prophetic than perhaps evenhe realized.According to The Wall Street Journal, Tiger Management lostover 10% of its assets during the first two weeks of September 1998 inthe wake of the LTCM hedge fund debacle.16 The principal implication of these losses is that it may have made Tiger and other hedgefunds that were short yen more likely to get out of their losing positions if the dollar fell further. Tiger still had an enormous short yenposition on. Put differently, in the eyes of some other market participants, Tiger became a weak hand with a large short yen position. Asudden rise in the yen could induce a short-covering rally as hedgefunds that were short would cover their positions. According to anews report on CNNfn, Tiger Management lost more than $2 billiondollars on one day in October 1998 (presumably October 7, 1998)from a short bet on the yen.17Was the sharp slide in the value of the dollar against the yen simply a distant echo of the LTCM crisis? To be sure, rumors that LTCMhad a yen-carry position on added to the belief that a sudden andadverse move in its position could force it out at extremely disadvantageous prices. On the floor of open outcry futures markets, thephrase “gunning for stops” is used to indicate the tendency of themarket to gravitate toward levels where stop-loss orders are thoughtto be clustered in the hopes of triggering stops and the momentaryimbalances in supply and demand that result. Something analogousmay have happened with respect to Tiger’s position. Although TigerManagement did not use explicit stops, market participants knew thatimplicit ones had to exist.Another point that deserves attention is that a significant numberof market participants use technical analysis to guide their tradingdecisions. The failure of key technical support levels (such as 133.50yen to the dollar) to hold earlier during the week of October 5, 1998
CHAPTER 8 • SIZE MATTERS
239
may have changed the trading preferences of technically orientedtraders. Simply put, the repeated breaching of dollar support levelswould have encouraged technical traders to reverse their long dollar(short yen) position and short the dollar (and go long the yen). Thiswould add to the selling pressure on the dollar against the yen.
Internal Market CatalystsAlthough much of this book has focused on the impact of externaltrading catalysts on market prices, some of the largest price changesare often the result of trading catalysts internal to the market, as thepreceding examples demonstrate. The impact of internal market catalysts may arise from the influence of large orders or the triggering oftrades as various price levels are breached.Internal trading catalysts may arise suddenly and seemingly unexpectedly. In large part, this is due to the fact that internal trading catalysts need not be tied to news. This may make the market’s responseto internal trading catalysts puzzling to many market observers andpolicymakers alike. Internal trading catalysts may be triggered accidentally or intentionally as part of a trading strategy.The impact of an internal trading catalyst induced price changeneed not be limited to the market in which it arises. Sometimes,internal trading catalysts in one market influence price changes andvolatility in other markets.The game-like nature of trading becomes even more apparentwhen the impact of internal trading catalysts on financial markets isexamined. It is imperative to know how other market participants willbehave in certain circumstances and react to potential trading catalysts. Many of the large price changes witnessed in financial marketsinvolve cascading waves of buy or sell orders. Although these waves ofbuy or sell orders could be prompted by the arrival of news, many of
240
TRADING CATALYSTS
these episodes arise when trading appears to feed upon itself—that is,positive feedback trading.18 As the preceding examples also demonstrate, many trading strategies may be based on the expectation ofigniting positive feedback trading by other market participants.The manner by which news is incorporated into speculativeprices has long fascinated financial economists. Nobel Laureate andCornell University Professor Robert Engle together with ProfessorsTakatoshi Ito and Wen-Ling Lin published an article in Econometricain 1990 that suggests that patterns in the volatility of changes in speculative prices are the result of either the arrival of new information ormarket dynamics in response to the arrival of new information. In aninteresting article, Professors Bradford J. DeLong, Andrei Shleifer,Lawrence H. Summers, and Robert J. Waldman advance a model inwhich positive feedback trading (i.e., trading that feeds on itself)makes rational speculation potentially price destabilizing; causesspeculative prices to overreact to news; increases price volatility; andinduces serial correlation and mean reversion in price changes. Theyattribute much positive feedback trading to extrapolative expectationsamong market participants and argue that it persists due to impediments to learning.19The sequential series of crises in Asian financial markets following the devaluation of the Thai baht on July 2, 1997 brings into sharprelief the impact of volatility spillover, contagion risk, transitory correlation, illiquidity, and positive feedback trading on the behavior ofspeculative prices.20 This chapter focuses on the impact of positivefeedback trading on the behavior of speculative prices during periodsof market stress.There are a number of sources of positive feedback trading.These include technical analysis, stop-loss orders, margin calls, portfolio insurance, and dynamic hedging or delta-hedging. In each case,traders exacerbate a price move by buying when prices are rising orselling when prices are falling. A trend-following trader would buywhen prices are rising and sell when prices are falling. A stop-loss
CHAPTER 8 • SIZE MATTERS
241
order requires selling out of a losing long position when prices arefalling or covering a losing short position when prices are rising. Similarly, a margin call forces an individual to either post more fundswhen a position moves against the individual or exit the position.Exiting a losing long position entails selling when prices are falling.Examples of positive feedback trading occur very frequently.Portfolio insurance was a popular trading strategy before thestock market crash of October 19, 1987. Basically, it entailed buying aput option to protect the value of a stock portfolio against a substantial decline in prices. However, because options are expensive, mostportfolio insurance programs created synthetic options on an asneeded basis instead of buying actual ones for the entire period—thatis, portfolio insurers replicated the payoffs on a synthetic put optiononly when they feared they needed a put. The creation of syntheticput options was accomplished by selling stock index futures wheneverstock prices fell below a certain trigger amount. In practice, thismeant that stock index futures would be sold in a falling market.Moreover, these trigger amounts were widely known by other marketparticipants.The Sumitomo copper debacle example discussed how deltahedging by option writers exacerbated the price decline of copper.The essence of hedging is to take an opposite position to the initialposition such that a decrease in the value of the initial position is offset by an increase in the value of the hedge position, and vice versa. Ifthe changes in the initial and hedge positions exactly offset eachother, one has a perfect hedge. As noted earlier, the delta of an optionshows how the value of the option changes with the value of theunderlying security or commodity. Again, the absolute value of deltais akin to the probability that the option will be exercised. It is alsoakin to the fraction of the underlying security or commodity. Thus, anoption with a delta of –.1 is equivalent to a tenth of the underlyingsecurity in the sense that it will move by 10 cents if the underlyingsecurity moves by a dollar. Put differently, a bank that sold 10 put
242
TRADING CATALYSTS
options would hedge itself by selling one copper futures contract. Ifthe delta changed to –.2, the bank would sell another copper futurescontract to maintain its hedge. If the delta changed to –.3, the bankwould sell yet another copper futures contract to remain delta neutral. Delta-hedging essentially requires that firms only hedge whatthey need to hedge.It was noted that two banks lost roughly $25 million each fromwriting put options on copper and delta-hedging their exposure tofalling copper futures prices. The question naturally arises as to howthe two banks lost money when they were delta-hedged. The answeris that delta-hedging works well when prices change in smallincrements. Large price moves down in the case of puts (or up in thecase of calls) means that the firms are not able to hedge completely.In this instance, hedging meant selling more copper futures contracts, thus exacerbating the downward price move. One componentof the cascade of selling in the copper futures market in May andJune of 1996 was due to banks delta-hedging their short put optionpositions.
Order Size as a Trading CatalystPerhaps the most fundamental internal trading catalyst is order size.Although financial economic theory suggests that order size aloneshould not influence market prices in an informationally efficientcapital market, in practice, large orders do. The mechanism by whichlarge orders influence financial market prices is called price pressure.The influence of large orders is especially pronounced when they areexecuted in a short period of time and in less liquid markets—that is,the price impact of large orders is greater the smaller market depth.To be sure, another component of the influence of large orders isthe suspicion that the party for whom the large order is executed hasinformation that other market participants do not have. Large traders
CHAPTER 8 • SIZE MATTERS
243
can capitalize on that