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Unveiling the Identity of PIN from the Flash Crash: Illiquidity or Information Asymmetry?

40 Pages Posted: 26 Oct 2010 Last revised: 4 Aug 2011

Qin Lei

University of Michigan at Ann Arbor

Date Written: August 1, 2011


This paper extends the original PIN framework to explicitly allow for the coexistence of liquidity shocks and fundamental news, both of which can lead to order imbalances. The pseudo market makers submit contrarian orders in the event of liquidity shocks and thus move the stock prices back to the fundamental level. Consequently, the conventional PIN measure consists of one component driven by the informed traders who receive the fundamental news and another component due to pseudo market makers who arrive upon liquidity shocks. During the flash crash on May 6, 2010, there is a nearly ten-fold market-wide increase in the illiquidity component of PIN but there is a lack of uniform increase in the information asymmetry component, based on the estimation of the extended PIN model for common stocks listed on NYSE and AMEX. In contrast, the original PIN model disallows liquidity shocks and thus overestimates the extent of asymmetric information. In addition to introducing a conceptually more pure measure of asymmetric information than that is previously available, this paper also contributes to the literature through methodological improvements to the PIN estimation and provides the recipe to eradicate the numerical overflow and underflow problems and impute the daily PIN series from repeated estimations of quarterly PINs.

Keywords: Probability of Informed Trading (PIN), Information Asymmetry, Flash Crash, Floating Point Overflow, Daily PIN Series

JEL Classification: G10, G14

Suggested Citation

Lei, Qin, Unveiling the Identity of PIN from the Flash Crash: Illiquidity or Information Asymmetry? (August 1, 2011). Available at SSRN: or

Qin Lei (Contact Author)

University of Michigan at Ann Arbor ( email )

Ross School of Business
701 Tappan Street
Ann Arbor, MI 48109-1234
United States


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