Identifying Information Asymmetry in Securities Markets
Review of Financial Studies, Forthcoming
93 Pages Posted: 16 Feb 2015 Last revised: 19 Oct 2017
Date Written: April 31, 2017
We propose and estimate a model of endogenous informed trading that is a hybrid of the PIN and Kyle models. When an informed trader trades optimally, both returns and order flows are needed to identify information asymmetry parameters. Empirical relationships between parameter estimates and price impacts and between parameter estimates and stochastic volatility are consistent with theory. We illustrate how the estimates can be used to detect information events in the time series and to characterize the information content of prices in the cross section. We also compare the estimates to those from other models on various criteria.
Keywords: PIN, Kyle Lambda, Information Asymmetry, Order Flow
JEL Classification: D82, D83, G14
Suggested Citation: Suggested Citation