Publication Type
Journal Article
Version
submittedVersion
Publication Date
11-2013
Abstract
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 e ective 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.
Keywords
autoregressive conditional duration, market microstructure, probability of informed trading, probability of symmetric order-flow shock, transaction data
Discipline
Econometrics
Research Areas
Econometrics
Publication
Journal of Applied Econometrics
Volume
28
Issue
7
First Page
1138
Last Page
1152
ISSN
1099-1255
Identifier
10.1002/jae.2302
Publisher
Wiley
Citation
PREVE, Daniel and TSE, Yiu Kuen.
Estimation of time-varying adjusted probability of informed trading and probability of symmetric order-flow shock. (2013). Journal of Applied Econometrics. 28, (7), 1138-1152.
Available at: https://ink.library.smu.edu.sg/soe_research/1398
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1002/jae.2302