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Probability of informed trading on the euro overnight market rate: an update

Author

Listed:
  • Idier, Julien
  • Nardelli, Stefano

Abstract

In this paper the probability of informed trading (PIN) model developed by Easley and O'Hara (1992) is applied to analyze the role and impact of heterogeneities in euro overnight unsecured market. The empirical assessment of the functioning of this market is based on the PIN which measures the ability of traders to interpret signals on the expected evolution of the overnight rate. Results show that between 2000 and 2004 a heterogeneous learning process of market mechanisms within participants could be observed, whereas such asymmetries have been sharply decreasing since 2005. This is reviewed against some significant events that occurred in the euro money market, such as the reform of the Eurosystem's operational framework in March 2004 and the recent financial market turmoil, which has represented a break in the steady decline of asymmetries as evidence suggest. JEL Classification: G14, E52

Suggested Citation

  • Idier, Julien & Nardelli, Stefano, 2008. "Probability of informed trading on the euro overnight market rate: an update," Working Paper Series 987, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:2008987
    Note: 658898
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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp987.pdf
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    Citations

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    Cited by:

    1. Zagaglia, Paolo, 2008. "Money-market segmentation in the euro area : what has changed during the turmoil?," Research Discussion Papers 23/2008, Bank of Finland.
    2. Zagaglia, Paolo, 2008. "Money-market segmentation in the euro area: what has changed during the turmoil?," Bank of Finland Research Discussion Papers 23/2008, Bank of Finland.
    3. repec:zbw:bofrdp:2008_023 is not listed on IDEAS
    4. Avouyi-Dovi, Sanvi & Idier, Julien, 2012. "The impact of unconventional monetary policy on the market for collateral: The case of the French bond market," Journal of Banking & Finance, Elsevier, vol. 36(2), pages 428-438.
    5. Renaud Beaupain & Alain Durr�, 2011. "Inferring trading dynamics for an OTC market: the case of the euro area overnight money market," Quantitative Finance, Taylor & Francis Journals, vol. 11(9), pages 1285-1295, October.
    6. Caterina Liberati & Massimiliano Marzo & Paolo Zagaglia & Paola Zappa, 2012. "Structural Distortions in the Euro Interbank Market: The Role of 'Key Players' during the Recent Market Turmoil," Working Paper series 57_12, Rimini Centre for Economic Analysis.
    7. Paolo Zagaglia, 2010. "Did the turmoil affect money-market segmentation in the Euro area?," Applied Economics Letters, Taylor & Francis Journals, vol. 17(18), pages 1783-1788.

    More about this item

    Keywords

    microstructure; money markets; PIN model;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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