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Measuring The Probability Of Informed Trading In An Order Driven Auction Market And A Comprehensive Analysis On The Determinants 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 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 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 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 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 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 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 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 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 Correlation of Order Flow and the Probability of Informed Trading by : Harald Henke
Download or read book Correlation of Order Flow and the Probability of Informed Trading written by Harald Henke and published by . This book was released on 2004 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt:
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:
Book Synopsis Information-Based Trading in Dealer and Auction Markets by : Hans G. Heidle
Download or read book Information-Based Trading in Dealer and Auction Markets written by Hans G. Heidle and published by . This book was released on 2001 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt: Are auction markets or dealer markets better able to identify informed traders? Our analysis of firms that transfer to an alternative exchange structure indicates that traders are more anonymous in a competing dealer market than in an auction environment. Our evidence also shows that the associated changes in the probability of trading with an informed trader are related to changes in the bid-ask spread. The reduction in bid-ask spreads are more pronounced for firms with higher probability of transacting with an informed trader prior to the relocation from a dealer to an auction market.
Book Synopsis Informed Trading, Institutional Trading, and Spread by : Malay K. Dey
Download or read book Informed Trading, Institutional Trading, and Spread written by Malay K. Dey and published by . This book was released on 2013 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: We use transactions data from TORQ and present empirical evidence on the cross sectional relation between institutional trading and effective spread after controlling for trading volume denoting inventory and order processing costs and probability of informed trading (PIN) denoting risk of informed trading. We find that volume, information risk premium denoted by PIN times price, and institutional trading are significant determinants of bid ask spreads for a sample of 65 NYSE listed securities. We also find that institutional trading increases the adverse selection component but does not have a significant effect on order processing costs. The net effect of institutional trading on spread depends on the dominant effect, information increasing adverse selection costs or liquidity decreasing order processing costs. In our sample the increase in adverse selection costs trumps the decrease in order processing costs and as a consequence spread increases as institutional trading rises.
Book Synopsis Trading and Exchanges by : Larry Harris
Download or read book Trading and Exchanges written by Larry Harris and published by OUP USA. This book was released on 2003 with total page 664 pages. Available in PDF, EPUB and Kindle. Book excerpt: Focusing on market microstructure, Harris (chief economist, U.S. Securities and Exchange Commission) introduces the practices and regulations governing stock trading markets. Writing to be understandable to the lay reader, he examines the structure of trading, puts forward an economic theory of trading, discusses speculative trading strategies, explores liquidity and volatility, and considers the evaluation of trader performance. Annotation (c)2003 Book News, Inc., Portland, OR (booknews.com).
Book Synopsis Probability of Informed Trading and Momentum by :
Download or read book Probability of Informed Trading and Momentum written by and published by . This book was released on 2012 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Informed Traders as Liquidity Providers by : Alexandra Hachmeister
Download or read book Informed Traders as Liquidity Providers written by Alexandra Hachmeister and published by Springer Science & Business Media. This book was released on 2007-11-03 with total page 188 pages. Available in PDF, EPUB and Kindle. Book excerpt: Alexandra Hachmeister’s thesis empirically analyzes and positively answers the question whether informed traders provide liquidity in an open limit order book. The analyses include a detailed market description of the German equity market, a new methodological approach for the identification of informed traders as well as the analysis of the individual liquidity providing and demanding behavior of the identified informed traders.
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.
