Abstract
The probability of informed trading (PIN) measure has been increasingly used in empirical research in finance. However, there is a growing debate as to whether PIN measures information-based or liquidity-based trading. We contribute to the discussion by estimating PIN using transaction data for one-month T-bills. Our PIN estimates exceed those reported for equities, despite it being unlikely that the probability of informed trading is higher in T-bills than equities. We conclude that PIN identifies trading clusters and that the source of the clustering depends on the economics of the market. The economics of the T-bill market suggest discretionary liquidity traders are the likely source of the clustering.
Original language | English |
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Pages (from-to) | 29-46 |
Number of pages | 18 |
Journal | Journal of Financial Markets |
Volume | 15 |
Issue number | 1 |
DOIs | |
State | Published - Feb 2012 |
Keywords
- Asymmetric information
- Informed trading
- Liquidity