Chakrabarty, B., Moulton, P. C, & Shkilko, A. (2012). Short sales, long sales, and the Lee-Ready trade classification algorithm revisited [Electronic version]. Retrieved [insert date], from Cornell University, School of Hospitality Administration site: http://scholarship.sha.cornell.edu/articles/2/
Short Sales, Long Sales, and the Lee-Ready Trade Classification Algorithm RevisitedArticles and Chapters
AbstractAsquith, Oman, and Safaya (2010) conclude that short sales are often misclassified by the Lee-Ready algorithm. The algorithm identifies most short sales as buyer-initiated, whereas the authors posit that short sales should be overwhelmingly seller-initiated. Using order data to identify true trade initiator, we document that short sales are, in fact, predominantly buyer-initiated and that the Lee-Ready algorithm correctly classifies most of them. Misclassification rates for short and long sales are near zero at the daily level. At the trade level, misclassification rates are 31% using contemporaneous quotes and trades and decline to 21% when quotes are lagged one second.