Publication Type

Journal Article

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

Copyright Owner and License

Authors

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Additional URL

http://doi.org/10.1002/jae.2302

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Econometrics Commons

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