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Measuring The Probability Of Informed Trading
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Book Synopsis Measuring the Probability of Informed Trading in an Order-Driven Auction Market and a Comprehensive Analysis on the Determinants of Informed Trading by : Tai Ma
Download or read book Measuring the Probability of Informed Trading in an Order-Driven Auction Market and a Comprehensive Analysis on the Determinants of Informed Trading written by Tai Ma and published by . This book was released on 2004 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this study, we are able to estimate the probability of informed trading on a transactional basis, which makes the hitherto difficult task of examining the transactional dynamics between informed trading, market depth and spread feasible. In addition, we have integrated the determinants of informed trading by a comprehensive analysis.We find that, as informed traders arrive, current volume and spread increase. This supports the clustering of trading hypothesis and provides empirical evidence to Admati and Pfleiderer (1988) viewpoint that both volatility and volume increase with informed trading. The VAR result suggests that uninformed traders avoid trading with the informed, and the decision of the uninformed depends on previous condition. The decision of the informed is based more on current situation and is attracted by price volatility.Overall, it is clear that the ultimate determinants of informed trading lies with the firm's financial quality and ownership structure. The condition of the market influences the timing of the informed trading, rather than the level of informed trading between firms.
Book Synopsis Measuring the Probability of Informed Trading by : Harald Henke
Download or read book Measuring the Probability of Informed Trading written by Harald Henke and published by . This book was released on 2004 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis An Ex-Ante Measure of the Probability of Informed Trading by : Marius Popescu
Download or read book An Ex-Ante Measure of the Probability of Informed Trading written by Marius Popescu and published by . This book was released on 2008 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper develops a new measure for the probability of informed trading, which can be estimated from the observed quotes and depths. This measure (PROBINF) represents the specialist's ex-ante estimate of the probability of informed trading. We find that PROBINF exhibits a strong and robust relationship with the observed level of insider trading and with measures of the price impact of trades. Moreover, the time series pattern of our measure in an intra-day analysis around earnings announcements is consistent with previous findings and with expectations regarding informed trading. An important advantage of PROBINF is that it can be estimated for each quote, and thus can be used to measure short term (e.g. intra-day, daily etc.) changes in informed trading and information asymmetry around events such as merger and acquisition announcements, share repurchases, stock splits, dividend announcements and index additions and deletions.
Book Synopsis Decomposing the Probability of Informed Trading Measure by : Wang Chun Wei
Download or read book Decomposing the Probability of Informed Trading Measure written by Wang Chun Wei and published by . This book was released on 2018 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper aims to analyze the dynamics of information asymmetry in market microstructure through the Easley et al. (2002)'s PIN framework in two segments. Firstly, we test to see if factors such as size, value and illiquidity can be used to explain PIN. Secondly, we extend beyond the traditional literature by examining individual components of PIN, especially the informed and uninformed trade intensities. We contribute to the literature by documenting non-linear relationships between trade intensities, and their autocorrelation functions. Our study show that uninformed intensity is more persistent than informed trading and that there exists statistically significant spillover effects from informed trading into liquidity trades, suggesting that liquidity trades lag behind that of informed trades.
Book Synopsis Does the Probability of Informed Trading Measure Informed Trading? by : James Petchey
Download or read book Does the Probability of Informed Trading Measure Informed Trading? written by James Petchey and published by . This book was released on 2015 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent research has raised concerns over whether the probability of informed trading model (PIN) is an appropriate proxy of information asymmetry. We investigate PIN and test whether the model can detect illegal insider trading prior to M&A announcements. We then compare the performance of PIN to an alternative proxy, the PIN asymmetric autoregressive conditional duration model (PIN-AACD), to determine if this model offers a better proxy for informed trading. We find that PIN does not measure informed trading prior to M&A announcements, and that PIN-AACD offers a better measure of information asymmetry.
Book Synopsis Estimation of Time Varying Adjusted Probability of Informed Trading and Probability of Symmetric Order-Flow Shock by : Daniel P. A. Preve
Download or read book Estimation of Time Varying Adjusted Probability of Informed Trading and Probability of Symmetric Order-Flow Shock written by Daniel P. A. Preve and published by . This book was released on 2015 with total page 18 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recently Duarte and Young (2009) study the probability of informed trading (PIN) proposed by Easley et al. (2002) and decompose it into two parts: the adjusted PIN (APIN) as a measure of asymmetric information and the probability of symmetric order-flow shock (PSOS) as a measure of illiquidity. They provide some cross-section estimates of these measures using daily data over annual periods. In this paper we propose a method to estimate daily APIN and PSOS by extending the method in Tay et al. (2009) using high-frequency transaction data. Our empirical results show that while PIN is positively contemporaneously correlated with variance, APIN is not. On the other hand, PSOS is positively correlated with daily average effective spread and variance, which is consistent with the interpretation of PSOS as a measure of illiquidity. Compared to APIN, PSOS exhibits clustering and sporadic bursts over time.
Book Synopsis Does the Probability of Informed Trading Model Fit Empirical Data? by : Quan Gan
Download or read book Does the Probability of Informed Trading Model Fit Empirical Data? written by Quan Gan and published by . This book was released on 2015 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: The probability of informed trading (PIN) is used widely as a measure of information asymmetry. Relatively little work has appeared on how well PIN models fit empirical trade data. We reveal structural limitations in PIN models by examining their marginal distributions and dependence structures represented by copulas. We develop a distribution-free test of the goodness-of-fit of PIN models. Our results indicate that estimated PIN models have generally poor fit to actual trade data. These results suggest that researchers should be cautious when PIN estimates are plugged into empirical models as explanatory variables.
Book Synopsis The Probability of Informed Trading and the Performance of Stock in an Order-Driven Market by : Tai Ma
Download or read book The Probability of Informed Trading and the Performance of Stock in an Order-Driven Market written by Tai Ma and published by . This book was released on 2002 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper we estimate the probability of informed trading (Pi) in an order-driven stock market as well as perform a comprehensive analysis on the interrelations among probability of informed trading and three common performance indicators, i.e., liquidity, volatility and efficiency. We find that uninformed traders exhibit price chasing behavior even over very short time interval and that volatility in stock price attracts uninformed traders. Using 3SLS which takes into consideration the endogeneity of the probability of informed trading and the liquidity, volatility and efficiency measures, our empirical results provide new evidence on market microstructure literature. We find that Pi and the volatility and liquidity of stocks are simultaneously determined. Higher Pi leads to lower liquidity and higher volatility, and vice versa. Liquidity can explain volatility and efficiency, while the opposite is not true. Firms with larger size, higher ownership concentration and lower turnover have higher probability of informed trading.
Book Synopsis Estimating the Probability of Informed Trading by : Ken Nyholm
Download or read book Estimating the Probability of Informed Trading written by Ken Nyholm and published by . This book was released on 2001 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Using a new empirical model, I estimate the probability of trades being generated by privately informed traders. Inference is drawn on a trade-by-trade basis using data samples from the New York Stock Exchange (NYSE). The modeling setup facilitates in-depth analysis of the estimated probability of informed trading at the intraday level and for stocks with different levels of trading activity. The most important empirical results are: (a) the intradaily pattern of the inferred probability of informed trading is highly correlated with the intradaily pattern of observed quoted spreads, (b) differences in the magnitude of quoted spreads across volume categories are not exclusively related to differences in the level of informed trading, and (c) private information is incorporated faster in the quotes for high-volume stocks than in the quotes for low-volume stocks.
Book Synopsis A Faster Estimation Method for the Probability of Informed Trading Using Hierarchical Agglomerative Clustering by : Quan Gan
Download or read book A Faster Estimation Method for the Probability of Informed Trading Using Hierarchical Agglomerative Clustering written by Quan Gan and published by . This book was released on 2015 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: The probability of informed trading (PIN) is a commonly used market microstructure measure for detecting the level of information asymmetry. Estimating PIN can be problematic due to corner solutions, local maxima and floating point exceptions (FPE). Yan and Zhang (2012) show that whilst factorization can solve FPE, boundary solutions appear frequently in maximum likelihood estimation for PIN. A grid search initial value algorithm is suggested to overcome this problem. We present a faster method for reducing the likelihood of boundary solutions and local maxima based on hierarchical agglomerative clustering (HAC). We show that HAC can be used to determine an accurate and fast starting value approximation for PIN. This assists the maximum likelihood estimation process in both speed and accuracy.
Download or read book InfoTrad written by Duygu Celik and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The purpose of this paper is to introduce the R package InfoTrad for estimating the proba- bility of informed trading (PIN) initially proposed by Easley et al. (1996). PIN is a popular information asymmetry measure that proxies the proportion of informed traders in the market. This study provides a short survey on alternative estimation techniques for the PIN. There are many problems documented in the existing literature in estimating PIN. InfoTrad package aims to address two problems. First, the sequential trading structure proposed by Easley et al. (1996) and later extended by Easley et al. (2002) is prone to sample selection bias for stocks with large trading volumes, due to floating point exception. This problem is solved by different factorizations provided by Easley et al. (2010) (EHO factorization) and Lin and Ke (2011) (LK factorization). Second, the estimates are prone to bias due to boundary solutions. A grid-search algorithm (YZ algorithm) is proposed by Yan and Zhang (2012) to overcome the bias introduced due to boundary estimates. In recent years, clustering algorithms have become popular due to their flexibility in quickly handling large data sets. Gan et al. (2015) propose an algorithm (GAN algorithm) to estimate PIN using hierarchical agglomerative clustering which is later extended by Ersan and Alici (2016) (EA algorithm). The package InfoTrad offers LK and EHO factorizations given an input matrix and initial parameter vector. In addition, these factorizations can be used to estimate PIN through YZ algorithm, GAN algorithm and EA algorithm.
Book Synopsis Multilayer Probability of Informed Trading by : Oguz Ersan
Download or read book Multilayer Probability of Informed Trading written by Oguz Ersan and published by . This book was released on 2017 with total page 75 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper demonstrates the multilayer structure of information in financial markets. While only 3.59% of 8,190 stock/quarter pairs have single information layer, 75% have two to five layers and 18% have six to eight layers. We develop a clustering algorithm which determines the number of information layers with the accuracy rates between 95% and 97% in simulated datasets. We propose a multilayer informed trading measure, MPIN by extending the original model of Easley et al. (1996). Respective solutions for computational problems regarding MPIN estimation are also provided. PIN model's estimates on informed trading and five intermediate parameters are heavily biased for datasets with multiple information layers, while MPIN model consistently provides accurate estimates. When compared to PIN, MPIN yields substantially higher probabilities of informed trading and information event occurrence; much lower rate of informed traders for real stock/quarter pairs. We obtain daily posterior multilayer probabilities conditional on the quarterly estimates of MPIN model. Posterior probabilities derived from MPIN model are approximately two fold when compared to the ones from PIN model surrounding earnings announcements.
Book Synopsis Empirical Market Microstructure by : Joel Hasbrouck
Download or read book Empirical Market Microstructure written by Joel Hasbrouck and published by Oxford University Press. This book was released on 2007-01-04 with total page 209 pages. Available in PDF, EPUB and Kindle. Book excerpt: The interactions that occur in securities markets are among the fastest, most information intensive, and most highly strategic of all economic phenomena. This book is about the institutions that have evolved to handle our trading needs, the economic forces that guide our strategies, and statistical methods of using and interpreting the vast amount of information that these markets produce. The book includes numerous exercises.
Book Synopsis Market Liquidity by : Thierry Foucault
Download or read book Market Liquidity written by Thierry Foucault and published by Oxford University Press. This book was released on 2023 with total page 531 pages. Available in PDF, EPUB and Kindle. Book excerpt: "The process by which securities are traded is very different from the idealized picture of a frictionless and self-equilibrating market offered by the typical finance textbook. This book offers a more accurate and authoritative take on this process. The book starts from the assumption that not everyone is present at all times simultaneously on the market, and that participants have quite diverse information about the security's fundamentals. As a result, the order flow is a complex mix of information and noise, and a consensus price only emerges gradually over time as the trading process evolves and the participants interpret the actions of other traders. Thus, a security's actual transaction price may deviate from its fundamental value, as it would be assessed by a fully informed set of investors. The book takes these deviations seriously, and explains why and how they emerge in the trading process and are eventually eliminated. The authors draw on a vast body of theoretical insights and empirical findings on security price formation that have come to form a well-defined field within financial economics known as "market microstructure." Focusing on liquidity and price discovery, the book analyzes the tension between the two, pointing out that when price-relevant information reaches the market through trading pressure rather than through a public announcement, liquidity may suffer. It also confronts many striking phenomena in securities markets and uses the analytical tools and empirical methods of market microstructure to understand them. These include issues such as why liquidity changes over time and differs across securities, why large trades move prices up or down, and why these price changes are subsequently reversed, and why we observe temporary deviations from asset fair values"--
Book Synopsis An Improved Estimation Method and Empirical Properties of the Probability of Informed Trading by : Yuxing Yan
Download or read book An Improved Estimation Method and Empirical Properties of the Probability of Informed Trading written by Yuxing Yan and published by . This book was released on 2011 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose a method to overcome a bias in the estimate of the probability of informed trading (PIN). This bias arises when the numerical maximization procedure generates corner solutions. We analyze the PIN estimates for about 80,000 stock-quarter pairs between 1993 and 2004, and observe a decreasing trend in PIN over this time period. The decimalization in January 2001 appears to accelerate this trend; the quarterly median PIN across stocks decreased by 20% since the first quarter of 2001 until the end of 2004. This provides direct evidence that the risk of trading against informed traders has reduced in recent years. We also find that the risk of informed trading is lower in the first quarter of a year than in the previous fourth quarter, especially for stocks whose price has gone up in previous year.
Book Synopsis Estimating the Probability of Informed Trading - Does Trade Misclassification Matter? by : Ekkehart Boehmer
Download or read book Estimating the Probability of Informed Trading - Does Trade Misclassification Matter? written by Ekkehart Boehmer and published by . This book was released on 2006 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: Easley et al. (1996) have proposed an empirical methodology to estimate the probability of informed trading (PIN). This approach has been employed in a wide range of applications in market microstructure, corporate finance, and asset pricing. To estimate the model, a researcher only needs the number of buyer- and seller-initiated trades. This information, however, is generally unobservable and has to be inferred from trade-classification algorithms, which are known to be inaccurate. In this paper, we show analytically that inaccurate trade classification leads to downward biased PIN estimates and that the magnitude of the bias is related to a security's trading intensity. Simulation results and empirical evidence based on order and transaction data from the New York Stock Exchange are consistent with this argument. We propose a data-based adjustment procedure that substantially reduces the misclassification bias.
Book Synopsis Information, Trading and Product Market Interactions by : Heather Elise Tookes
Download or read book Information, Trading and Product Market Interactions written by Heather Elise Tookes and published by . This book was released on 2003 with total page 592 pages. Available in PDF, EPUB and Kindle. Book excerpt:
