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Review of Financial Studies Vol. 38 No. 3 2025

The Market Inside the Market: Odd-Lot Quotes

Robert P. Bartlett1; Justin McCrary2; Maureen O’Hara3

1 Stanford Law School, Stanford University , · 2 Columbia University Law School and National Bureau of Economic Research (NBER) , · 3 Johnson College of Business, Cornell University

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.

DOI
10.1093/rfs/hhad074
Volume
38
Issue
3
Pages
661-711
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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