Publication Type
Journal Article
Version
acceptedVersion
Publication Date
5-2009
Abstract
This paper applies the asymmetric autoregressive conditional duration (AACD) model of Bauwens and Giot (2003) to estimate the probability of informed trading (PIN) using irregularly spaced transaction data. We model trade direction (buy versus sell orders) and the duration between trades jointly. Unlike the Easley, Hvidkjaer, and O'Hara (2002) approach, which uses the aggregate numbers of daily buy and sell orders to estimate PIN, our methodology allows for interactions between consecutive buy-sell orders and accounts for the duration between trades and the volume of trade. We extend the Easley–Hvidkjaer–O'Hara framework by allowing the probabilities of good news and bad news to vary each day. Our PIN estimates can be computed daily as well as over intraday intervals.
Keywords
autoregressive conditional duration, market microstructure, probability of informed trading, transaction data, Weibull distribution
Discipline
Econometrics | Finance | Finance and Financial Management
Research Areas
Finance; Econometrics
Publication
Journal of Financial Econometrics
Volume
7
Issue
3
First Page
288
Last Page
311
ISSN
1479-8409
Identifier
10.1093/jjfinec/nbp005
Publisher
Oxford University Press
Citation
TAY, Anthony S.; TING, Christopher; TSE, Yiu Kuen; and WARACHKA, Mitchell.
Using high-frequency transaction data to estimate the probability of informed trading. (2009). Journal of Financial Econometrics. 7, (3), 288-311.
Available at: https://ink.library.smu.edu.sg/soe_research/519
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/10.1093/jjfinec/nbp005