Abstract
This paper investigates whether measures of the probability of information-based trading (PIN) estimated from microstructure models capture the effects of information asymmetry and trading by informed traders. To address the issue of the joint hypothesis, we examine the effectiveness of these measures using a sample of merger and acquisition (M&A) announcements that are known to be associated with illegal insider trading. We find that the PIN measure decreases prior to the announcements, while a modified measure that allows for the autoregressive conditional duration (ACD) of trades and the time-varying probabilities of news better reflects the presence of informed trading. Our results also suggest that the modified specification (PIN-AACD) overcomes some of the estimation problems found in the PIN measure in prior research.
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.
