Information Content in Small and Large Trades

30 Pages Posted: 19 Jul 2011

See all articles by Malay K. Dey

Malay K. Dey

Financial Engineering Group, ITG Inc.

Hal S. Stern

University of California, Irvine - Department of Statistics

Hongmei Zhang

affiliation not provided to SSRN

Date Written: February / July 2011

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.

Keywords: G19)

Suggested Citation

Dey, Malay K. and Stern, Hal S. and Zhang, Hongmei, Information Content in Small and Large Trades (February / July 2011). Economic Notes, Vol. 40, Issue 1‐2, pp. 45-74, 2011. Available at SSRN: https://ssrn.com/abstract=1888901 or http://dx.doi.org/10.1111/j.1468-0300.2011.00232.x

Malay K. Dey (Contact Author)

Financial Engineering Group, ITG Inc. ( email )

380 Madison Avenue
New York, NY 10017
United States

Hal S. Stern

University of California, Irvine - Department of Statistics ( email )

Campus Drive
Irvine, CA 62697-3125
United States

Hongmei Zhang

affiliation not provided to SSRN

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