Abstract
In this study, we are able to estimate the probability of informed trading on a transactional basis, which makes the hitherto difficult task of examining the transactional dynamics between informed trading, market depth and spread feasible. In addition, we have integrated the determinants of informed trading by a comprehensive analysis. We find that, as informed traders arrive, current volume and spread increase. This supports the clustering of trading hypothesis and provides empirical evidence to Admati and Pfleiderer (1988) viewpoint that both volatility and volume increase with informed trading. The VAR result suggests that uninformed traders avoid trading with the informed, and the decision of the uninformed depends on previous condition. The decision of the informed is based more on current situation and is attracted by price volatility. Overall, it is clear that the ultimate determinants of informed trading lies with the firm's financial quality and ownership structure. The condition of the market influences the timing of the informed trading, rather than the level of informed trading between firms.
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