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Does the PIN Model Mis-Identify Private Information and If So, What Are Our Alternatives?

84 Pages Posted: 14 Feb 2015 Last revised: 13 May 2017

Jefferson Duarte

Rice University

Edwin Hu

U.S. Securities and Exchange Commission - Division of Economic and Risk Analysis

Lance A. Young

University of Washington - Department of Finance and Business Economics

Date Written: May 11, 2017

Abstract

We investigate whether the Easley and O’Hara (1987) PIN model mis-identifies private information from variation in turnover. We find that the PIN model is no more useful in identifying private information arrival than simply looking at whether turnover is above average or not. This calls into question the PIN as a measure of private information since turnover varies for many reasons unrelated to private information arrival. We also examine two alternatives to the PIN model, the Generalized PIN model (GPIN) and the Odders-White and Ready (2008) model (OWR). Our tests do not reveal any problems with these two models’ ability to identify private information, but indicate that the OWR model performs somewhat better.

Keywords: Liquidity; Information Asymmetry

JEL Classification: G14

Suggested Citation

Duarte, Jefferson and Hu, Edwin and Young, Lance A., Does the PIN Model Mis-Identify Private Information and If So, What Are Our Alternatives? (May 11, 2017). Available at SSRN: https://ssrn.com/abstract=2564369 or http://dx.doi.org/10.2139/ssrn.2564369

Jefferson Duarte (Contact Author)

Rice University ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States
713.3486137 (Phone)

Edwin Hu

U.S. Securities and Exchange Commission - Division of Economic and Risk Analysis ( email )

United States Securities and Exchange Commission
100 F St NE
Washington, DC 20549
United States

Lance Young

University of Washington - Department of Finance and Business Economics ( email )

Box 353200
Seattle, WA 98195
United States

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