A passive buy can earn the spread precisely when the stock is about to fall. This selection effect explains why quoting a favourable price is insufficient evidence of a profitable execution policy. Building on spread measurement, this lesson assigns trade signs, constructs signed-volume features, and separates information risk from unsupported claims about who traded or what caused a price move.
Learning objectives. By the end of this note you should be able to:
- implement the tick rule with a declared initial-sign convention;
- distinguish signed traded volume from displayed book imbalance;
- interpret a price-response regression and its units;
- evaluate the later value of passive fills;
- explain why persistent flow is not proof of informed trading.
In this lesson
- Which side initiated the trade?
- Two different imbalances
- A price-response coefficient
- The cost of being selected
- Persistence has several explanations
Before you start
The full lesson, with worked examples and exercise solutions, is for members.
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