Identifying information asymmetry in securities markets

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review

24 Scopus Citations
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Detail(s)

Original languageEnglish
Pages (from-to)2277-2325
Journal / PublicationReview of Financial Studies
Volume31
Issue number6
Online published30 Nov 2017
Publication statusPublished - 1 Jun 2018

Abstract

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.

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Citation Format(s)

Identifying information asymmetry in securities markets. / Back, Kerry; Crotty, Kevin; Li, Tao.
In: Review of Financial Studies, Vol. 31, No. 6, 01.06.2018, p. 2277-2325.

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review