Extending the Ekop Model to Estimate the Probability of Informed Trading

Venter, Johannes Hendrik; de Jongh, Dawid CJ

doi:10.2139/ssrn.547062

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Extending the Ekop Model to Estimate the Probability of Informed Trading

20 Pages Posted: 25 May 2004

See all articles by Johannes Hendrik Venter

Johannes Hendrik Venter

North-West University - Center for Business Mathematics

Dawid CJ de Jongh

North-West University - Center for BMI

Date Written: May 17, 2004

Abstract

Easley, Kiefer, O'Hara and Paperman (1996) introduced a model that enables one to estimate the probability of informed trading in a stock using as input data the numbers of buyer and seller initiated trades over a period. Empirical testing suggests that this model does not fit data well. We formulate several extensions of the model improving its ability to fit data and discuss the effects this has on the accuracy of estimating the probability of informed trading.

Keywords: Informed trading, market microstructure, model fit, Poisson Inverse Gaussian distribution

JEL Classification: G52, G10, G14

Suggested Citation: Suggested Citation

Venter, Johannes Hendrik and de Jongh, Dawid CJ, Extending the Ekop Model to Estimate the Probability of Informed Trading (May 17, 2004). Available at SSRN: https://ssrn.com/abstract=547062 or http://dx.doi.org/10.2139/ssrn.547062