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The trading profits of SOES bandits

Open access
Harris, Jeffrey H., Schultz, Paul H.·1998·Journal of Financial Economics
DOI 10.1016/s0304-405x(98)00031-2
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Abstract

SOES bandits are individual investors who use Nasdaq's Small Order Execution System (SOES) for day trading. Their average profit per trade is small, but they trade dozens or hundreds of times per week. Bandits usually establish a position before most market-makers have updated their quotes, and lay off the position at favorable prices through Instinet or SelectNet. It is noteworthy that they trade profitably with market-makers despite having less information. Bandits keep the profits and bear the losses from their trades. Thus they have greater incentives to trade well than the employees of market-making firms.

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Figures

Fig. 1 The distribution of bandit s pro ts before commissions for round-trip transactions. Pro ts of bandits from rm A are depicted by solid bars. Pro ts of bandits from rm B are depicted by clear bars.
Fig. 1 The distribution of bandit s pro ts before commissions for round-trip transactions. Pro ts of bandits from rm A are depicted by solid bars. Pro ts of bandits from rm B are depicted by clear bars.CC-BY-NC-ND · From the PDF
Fig. 2 (a) The number of round-trip transactions by the three most active traders at rm A in the ten stocks most frequently traded by all rm A bandits. (b) The number of round-trip transactions by the 10th, 11th, and 12th most active traders at rm A in the ten stocks most frequently traded by rm A bandits.
Fig. 2 (a) The number of round-trip transactions by the three most active traders at rm A in the ten stocks most frequently traded by all rm A bandits. (b) The number of round-trip transactions by the 10th, 11th, and 12th most active traders at rm A in the ten stocks most frequently traded by rm A bandits.CC-BY-NC-ND · From the PDF
Fig. 3 The number of buy orders and sell orders for rm B bandits for each ve minute period of the trading day during the two weeks from January 22, 1996 to February 2, 1996.
Fig. 3 The number of buy orders and sell orders for rm B bandits for each ve minute period of the trading day during the two weeks from January 22, 1996 to February 2, 1996.CC-BY-NC-ND · From the PDF
Fig. 4 The di/erence between the number of dealers at the bid and the number of dealers at the ask at the time that bandits from rm B initiated or traded out of positions. Solid bars show the distribution when bandits initiate positions and clear bars depict the distribution when bandits layo/ a position.
Fig. 4 The di/erence between the number of dealers at the bid and the number of dealers at the ask at the time that bandits from rm B initiated or traded out of positions. Solid bars show the distribution when bandits initiate positions and clear bars depict the distribution when bandits layo/ a position.CC-BY-NC-ND · From the PDF
Fig. 5 Mean pro t by 20 s holding period for all trades from rm B bandits for January 22, 1996 to February 2, 1996. The holding periods refer to the time if held to the end of the 20 s interval.
Fig. 5 Mean pro t by 20 s holding period for all trades from rm B bandits for January 22, 1996 to February 2, 1996. The holding periods refer to the time if held to the end of the 20 s interval.CC-BY-NC-ND · From the PDF

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Research works printed but not linked: 3

  1. Battalio, 1997, SOES trading and market volatility, Journal of Financial and Quantitative Analysis, 32, 225, 10.2307/2331174 · DOI
  2. Harris, 1997, The Importance of firm quotes and rapid executions: Evidence from the January 1994 change in SOES, Journal of Financial Economics, 45, 135, 10.1016/S0304-405X(97)00013-5 · DOI
  3. Hinden, 1994, Nasdaq's big guns send trading bandits packing, Washington Post, February, 7, 1994

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Metadata

Authors
Harris, J. H., & Schultz, P. H.
Affiliations
University of Notre Dame (US)
Corresponding author
Schultz, Paul H.
ORCID
Venue
Journal of Financial Economics
Publisher
Elsevier BV
Published
1998-10
Volume
50
Issue
1
Pages
39-62
ISSN
0304-405X (ISSN-L)
DOI
10.1016/s0304-405x(98)00031-2
OpenAlex
W1552154167
Cited by
113
References
0
Citations by year
2026: 2 · 2024: 3 · 2023: 3 · 2022: 3 · 2021: 1 · 2020: 3 · 2019: 4 · 2018: 2 · 2017: 1 · 2016: 4 · 2015: 4 · 2014: 8 · 2013: 3 · 2012: 3
FWCI
10.38
Type
journal article
Language
en
Open access
Licence
Locations
  • Journal of Financial Economics (publishedVersion, cc-by-nc-nd)
  • SSRN Electronic Journal (submittedVersion)
  • RePEc: Research Papers in Economics (submittedVersion)
Topics
  • Social Sciences › Economics, Econometrics and Finance › Finance › Financial Markets and Investment Strategies
  • Social Sciences › Economics, Econometrics and Finance › Finance › Stochastic processes and financial applications
  • Social Sciences › Business, Management and Accounting › Accounting › Financial Analysis and Corporate Governance
Keywords
state-owned enterprises, day trading, retail investors, market makers, NASDAQ, trading profits, market microstructure, information asymmetry

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CoChat. (2026). Citation check: The trading profits of SOES bandits. https://app.cochat.ai/papers/10.1016/s0304-405x(98)00031-2
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Harris, J. H., & Schultz, P. H. (1998). The trading profits of SOES bandits. Journal of Financial Economics. https://doi.org/10.1016/s0304-405x(98)00031-2