Decomposing the Probability of Informed Trading Measure
Posted: 28 Aug 2012 Last revised: 2 Oct 2018
Date Written: May 27, 2012
This paper aims to analyze the dynamics of information asymmetry in market microstructure through the Easley et al. (2002)'s PIN framework in two segments. Firstly, we test to see if factors such as size, value and illiquidity can be used to explain PIN. Secondly, we extend beyond the traditional literature by examining individual components of PIN, especially the informed and uninformed trade intensities. We contribute to the literature by documenting non-linear relationships between trade intensities, and their autocorrelation functions. Our study show that uninformed intensity is more persistent than informed trading and that there exists statistically significant spillover effects from informed trading into liquidity trades, suggesting that liquidity trades lag behind that of informed trades.
Keywords: PIN, informed trading, information asymmetry, market microstructure
JEL Classification: C01, C02, G10, G14, G17
Suggested Citation: Suggested Citation