Dynamic Trade Informativeness
54 Pages Posted: 1 Oct 2018 Last revised: 22 Feb 2022
Date Written: February 20, 2022
Abstract
This paper develops a structural model to examine high-frequency price dynamics. The key innovation is to allow trades’ permanent price impact to be time-varying—dynamic trade informativeness. A distribution-free filtering technique pins the real-world data to the model. The filtered series significantly recover the efficient price innovation through the dynamics of trade informativeness, highlight general intraday trends across stocks, improve trades’ explanatory power for future returns, distinguish informativeness from trades’ aggressiveness, gauge informed investors’ patience, and capture systematic patterns around scheduled and unscheduled events. The framework contributes to the better utilization of high-frequency trading data.
Keywords: trade informativeness, price impact, filtering, high-frequency data
JEL Classification: C58, G14
Suggested Citation: Suggested Citation