According to the Kyle (1985) model of informed trading, information in trade size is likely to effect a permanent price impact, as opposed to bid-ask bounce, which mainly captures transitory price fluctuation. However, two prominent structural models in the literature do not include trade size in their framework. In this paper, we present a nesting relationship of major structural models and formulate a generalized model that includes all relevant trade variables. A new measure to quantify the amount of information in the order flow is proposed. Using this price impact measure, our empirical analysis shows that it is indeed the “surprise” in trade size that contributes significantly in reflecting the price change of Nikkei and TOPIX futures.
Finance and Financial Management
Conference on the Theories and Practices of Securities and Financial Markets 23rd SFM 2015, December 11-12
City or Country
TEE, Chyng Wen; TING, Christopher; and Christopher.
Volume Information in Nikkei and TOPIX Futures Transactions. (2015). Conference on the Theories and Practices of Securities and Financial Markets 23rd SFM 2015, December 11-12. Research Collection Lee Kong Chian School Of Business.
Available at: http://ink.library.smu.edu.sg/lkcsb_research/4866