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The Market Inside the Market: Odd-Lot Quotes

Author

Listed:
  • Robert P Bartlett
  • Justin McCrary
  • Maureen O’Hara

Abstract

We show current market practices relating to odd-lot quotes create a large “inside” market where better prices routinely exist relative to the National Best Bid or Offer. We show that odd-lot quotes play a price discovery role, and these quotes provide valuable information to traders with access to proprietary data feeds. Using a XGBoost machine learning algorithm that uses odd-lot data to predict future prices, we demonstrate a simple and profitable trading strategy. We argue the SEC’s proposed round-lot redefinition reduces—but does not eliminate—the high incidence of superior odd-lot quotes within the NBBO.

Suggested Citation

  • Robert P Bartlett & Justin McCrary & Maureen O’Hara, 2025. "The Market Inside the Market: Odd-Lot Quotes," The Review of Financial Studies, Society for Financial Studies, vol. 38(3), pages 661-711.
    • Handle: RePEc:oup:rfinst:v:38:y:2025:i:3:p:661-711.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhad074
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    More about this item

    Keywords

    G14; G12; G28;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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