Intraday Trading Patterns: The Role of Timing
AbstractIn a dynamic model of financial market trading multiple heterogeneously informed traders choose when to place orders. Better informed traders trade immediately, worse informed delay — even though they expect the public expectation to move against them. This behavior causes distinct intra-day patterns with decreasing (L-shaped) spreads and increasing (reverse L-shaped) volume and probability of informed trading (PIN). Competition increases market participation and causes more pronounced spread and less pronounced volume patterns. Systematic improvements in information increase spreads and volume. Very short-lived private information generates L- or reverse J-shaped volume patterns, which are further enhanced by competition.
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Bibliographic InfoPaper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-365.
Length: 44 pages
Date of creation: 01 Aug 2009
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intraday patterns; asymmetric information; trade timing; microstructure;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-08-16 (All new papers)
- NEP-CTA-2009-08-16 (Contract Theory & Applications)
- NEP-MST-2009-08-16 (Market Microstructure)
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