Above Up, Below Down: The Impact of Limit Order Clustering on Stock Price Movements

Stocks with daily closing price slightly above round numbers (e.g., $6.1) tend to move up, while those just below (e.g., $5.9) tend to fall down the next day. An applied long-short strategy yields a daily return of 24.6 basis points, or an annualized 61%. This pattern is pervasive across intraday and global markets. Based on Trade and Quote data, we show that this pattern is primarily driven by limit order clustering at round numbers, which supports stocks with prices just above and suppresses those just below these round numbers. Our findings provide practical insights for traders by highlighting exploitable market microstructure dynamics.