Measuring Probability of Informed Trading in Tehran Stock Exchange

Rahmaniani, Moloud; Taleblo, Reza

doi:10.29252/jemr.8.29.73

Volume 8, Issue 29 (10-2017) jemr 2017, 8(29): 73-98 | Back to browse issues page

‎ 10.29252/jemr.8.29.73

‎ 20.1001.1.22286454.1396.8.29.4.3

Mendeley

Zotero

RefWorks

Rahmaniani M, Taleblo R. Measuring Probability of Informed Trading in Tehran Stock Exchange. jemr 2017; 8 (29) :73-98
URL: http://jemr.khu.ac.ir/article-1-1380-en.html

Measuring Probability of Informed Trading in Tehran Stock Exchange

Moloud Rahmaniani ^*

¹, Reza Taleblo²

1- Allameh Tabatabii University , moloud.rahmaniani@gmail.com
2- Allameh Tabatabii University

Abstract: (6961 Views)

The level of asymmetric information in financial markets is important for its impact on the market formation, price levels and its interaction with investment risk. Also, determining the optimal rules by policy makers and determining the trading strategy by investors is done according to the level of information symmetry in the market. In financial literature, many metrics have been developed to measure the asymmetry of market information. In recent years, another measure known as probability of informed trading (PIN) has been introduced to measure the level of asymmetric information, based on the framework of market microstructure. Larger PINs from 0 to 1 range indicate higher information asymmetry levels. In this study, using the Easley, O'Hara (1992) approach, the probability informed trading as a measure of the level of market information asymmetry for the 12 selected companies from listed companies in Tehran Stock Exchange is estimated. We used maximum likelihood to estimate parameters with R package. The results show that average of PIN varies from 0.35 to 0.4 for different companies.

Keywords: Asymmetric Information, Market Microstructure, Probability of Informed Trading

Full-Text [PDF 498 kb] (6287 Downloads)

Type of Study: Applicable | Subject: پولی و مالی
Received: 2016/05/3 | Accepted: 2017/11/7 | Published: 2017/12/16

References

1.  Bhattacharya , Neil ,H .Desai and K .Venkataraman,(2009) . "Earnings Quality and Information Asymmetry" Available at URL: http://www.ssrn.com. [DOI:10.2139/ssrn.1266351]

2.  Brown, S., & Hillegeist, S. A. (2007). How disclosure quality affects the level of information asymmetry. Review of Accounting Studies, 12(2-3), 443-477. [DOI:10.1007/s11142-007-9032-5]

3.  Clarke, J., & Shastri, K. (2000). On information asymmetry metrics. Available at SSRN 251938. [DOI:10.2139/ssrn.251938]

4.  Cormier, D., Aerts, W., Ledoux, MJ., and M, Magnan.( 2009). "Attributes of social and Human Capital Disclosure and Information Asymmetry between Managers and Investors". Canadian Journal of Administrative Sciences, 26(1):71-88. [DOI:10.1002/cjas.89]

5.  Easley, D., & O'hara, M. (1987). Price, trade size, and information in securities markets. Journal of Financial economics, 19(1), 69-90. [DOI:10.1016/0304-405X(87)90029-8]

6.  Easley, D., Kiefer, N. M., O'hara, M., & Paperman, J. B. (1996). Liquidity, information, and infrequently traded stocks. The Journal of Finance, 51(4), 1405-1436. [DOI:10.1111/j.1540-6261.1996.tb04074.x]

7.  Easley, D., Hvidkjaer, S., & O'hara, M. (2002). Is information risk a determinant of asset returns?. The journal of finance, 57(5), 2185-2221. [DOI:10.1111/1540-6261.00493]

8.  Easley, D., Engle, R. F., O'Hara, M., & Wu, L. (2008). Time-varying arrival rates of informed and uninformed trades. Journal of Financial Econometrics, 6(2), 171-207. [DOI:10.1093/jjfinec/nbn003]

9.  Easley, D., López de Prado, M. M., & O'Hara, M. (2012). Flow toxicity and liquidity in a high-frequency world. The Review of Financial Studies, 25(5), 1457-1493. [DOI:10.1093/rfs/hhs053]

10.  Easley, D., R. F. Engle, M. O'Hara and L. Wu (2008): "Time-Varying Arrival Rates of Informed and Uninformed Traders", Journal of Financial Econometrics, Vol. 6 No. 2: pp. 171-207. [DOI:10.1093/jjfinec/nbn003]

11.  Easley, D., M. Lopez de Prado and M. O'Hara (2012): "Bulk Classification of Trading Activity [DOI:10.2139/ssrn.1989555]

12.  Ersan, Oguz, Multilayer Probability of Informed Trading (2016). [DOI:10.2139/ssrn.2874420]

13.  Healy,P., A. Hutton and K .Palepu,(1999). "Stock performance and intermediation changes surrounding increase in disclosure" .Contemporary Accounting Research 16,485-520. [DOI:10.1111/j.1911-3846.1999.tb00592.x]

14.  Hasbrouck, J. [2007]: "Empirical Market Microstructure", Oxford University Press.

15.  Jayaraman. S.(2008)."Earnings volatility, cash flow volatility and informed trading". Journal of Accounting Research 46, 809-851. [DOI:10.1111/j.1475-679X.2008.00293.x]

16.  Idier, J., & Nardelli, S. (2011). Probability of informed trading on the euro overnight market rate. International Journal of Finance & Economics, 16(2), 131-145. [DOI:10.1002/ijfe.420]

17.  Kitamura, Y. (2016). The probability of informed trading measured with price impact, price reversal, and volatility. Journal of International Financial Markets, Institutions and Money, 42, 77-90. [DOI:10.1016/j.intfin.2016.02.001]

18.  Glosten, L. R., & Milgrom, P. R. (1985). Bid, ask and transaction prices in a specialist market with heterogeneously informed traders. Journal of financial economics, 14(1), 71-100. [DOI:10.1016/0304-405X(85)90044-3]

19.  Mohd ,E.(2005). "Accounting for Software Development Costs and Information Asymmetry" .The Accounting Review 80 (4):1211-1231. [DOI:10.2308/accr.2005.80.4.1211]

20.  Mishkin. F (2015) The Economics of Money, Banking and Financial Markets (11th Edition)

21.  Phuensanea, P., & Williamsa, J. Was There Informed Trading in LIBOR Referenced Interest Rate Futures?.

22.  Richardson,V.J.,(2000). "Information asymmetry and earnings management: some evidence."Review of Quantitative Finance and Accounting. 15,325 -347. [DOI:10.1023/A:1012098407706]

23.  Vega,C., (2006). "Stock Price Reaction to Public and Private Information". [DOI:10.1016/j.jfineco.2005.07.011]

24.  Wan,Y.,(2009)."Corporate Governance, Disclosure Method and Information Asymmetry". Master of Sciense Thesis. Available at URL: http://proquest.umi.com.

25.  Yan, Y., & Zhang, S. (2014). Quality of PIN estimates and the PIN-return relationship. Journal of Banking & Finance, 43, 137-149. [DOI:10.1016/j.jbankfin.2014.03.006]