A PIN Per Day Shows What News Convey – The Intraday Probability of Informed Trading
75 Pages Posted: 26 Aug 2013
Date Written: August 26, 2013
Insider trading and the effectiveness of regulatory actions trying to detect and prevent it are of great interest to traders, regulators, prosecutors and the public. This paper develops an intraday estimation procedure for the sequential trading model initially proposed by Easley et al. (1987, 1992, 1996, 1997) to show how official announcements stipulated in German insider trading legislation significantly reduce information asymmetry upon public disclosure. Using a full year of intraday trading data for the top 100 German stocks, we demonstrate how the new estimation procedure presented in this paper eliminates or significantly reduces the shortcomings of the original approach in recent, high-frequency trading environments, which are convergence problems during parameter estimation, limited applicability in short horizon event studies and violations of the model’s underlying assumptions.
Keywords: Capital Markets, Probability of Informed Trading, High-Frequency Trading, Insider Trading Regulation, Event Study
JEL Classification: G14
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