Abstract
We estimate the probabilities of informed trading (PIN) for small and large trades and then investigate their determinants. We model a competitive dealership market for equities with two order sizes using a Poisson process mixture model and use TORQ data to estimate the parameters for the model via the method of maximum likelihood. The PIN for small and large trades are functions of the resulting parameter estimates. In our empirical tests, we find that although for the majority of securities information contents in small and large trades are similar, the average PIN for small trades is significantly higher than that in large trades. We also find that trading volume and institutional trading are the primary determinants of information content in small and large trades, respectively, but not of both. A further investigation of the securities with the largest differences in terms of PINs for small and large trades reveals that trade size alone distinguishes those firms from the rest – all eight firms reside in the lowest quartile in terms of average trade size.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
