This study directly tests the ability of severalcompeting methods to identify market buy and sellorders using intra-day quote and trade prices, andidentifies factors that affect the accuracy of themethods. Lee and Ready's (1991) algorithm performsabout the same as the tick test, but the performanceof both methods is worse than expected. The resultsshow that the use of either algorithm to classifytrades can lead to significantly biased estimates ofeffective spreads and signed volume, but the ticktest provides better estimates of effective spreadsand signed volume than Lee and Ready's method.

This study examines the hypothesis that in the presence of market frictions, relative put and call prices contain information concerning future returns of the underlying asset. A measure of relative prices is derived from the put-call parity relationship for index options and applied to a three-year sample of OEX option transactions. The results show that the measure of relative index option prices leads the stock market by at least 15 minutes.

A piecewise linear weighting function for Black-Scholes implied volatilities is used in conjunction with the Black-Scholes call pricing model to approximate stochastic volatility European call prices. A sensitivity analysis is conducted to compare simulated stochastic volatility call prices to the Black-Scholes prices calculated with the weighted implied volatilities. The analysis indicates that a simple model can provide close approximations to the simulated prices with far less computational effort.