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Intraday Trading Patterns: The Role of Timing

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  • Katya Malinova
  • Andreas Park

Abstract

In 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 Info

Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-365.

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Length: 44 pages
Date of creation: 01 Aug 2009
Date of revision:
Handle: RePEc:tor:tecipa:tecipa-365

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Keywords: intraday patterns; asymmetric information; trade timing; microstructure;

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References

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  1. Easley, David, et al, 1996. " Liquidity, Information, and Infrequently Traded Stocks," Journal of Finance, American Finance Association, American Finance Association, vol. 51(4), pages 1405-36, September.
  2. Lones Smith, 2000. "Private Information and Trade Timing," American Economic Review, American Economic Association, American Economic Association, vol. 90(4), pages 1012-1018, September.
  3. David K. Ding & Sie Ting Lau, 2001. "An Analysis of Transactions Data for the Stock Exchange of Singapore: Patterns, Absolute Price Change, Trade Size and Number of Transactions," Journal of Business Finance & Accounting, Wiley Blackwell, Wiley Blackwell, vol. 28(1-2), pages 151-174.
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  5. Malinova, Katya & Park, Andreas, 2011. "Trading Volume in Dealer Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 45(06), pages 1447-1484, January.
  6. Paul Milgrom & Nancy L.Stokey, 1979. "Information, Trade, and Common Knowledge," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 377R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. Brock, William A. & Kleidon, Allan W., 1992. "Periodic market closure and trading volume : A model of intraday bids and asks," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 16(3-4), pages 451-489.
  8. Archishman Chakraborty & Bilge Yilmaz, . "Informed Manipulation," Rodney L. White Center for Financial Research Working Papers, Wharton School Rodney L. White Center for Financial Research 7-00, Wharton School Rodney L. White Center for Financial Research.
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  13. Foster, F Douglas & Viswanathan, S, 1990. "A Theory of the Interday Variations in Volume, Variance, and Trading Costs in Securities Markets," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 3(4), pages 593-624.
  14. Anat R. Admati, Paul Pfleiderer, 1988. "A Theory of Intraday Patterns: Volume and Price Variability," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 1(1), pages 3-40.
  15. Lee, Charles M C & Mucklow, Belinda & Ready, Mark J, 1993. "Spreads, Depths, and the Impact of Earnings Information: An Intraday Analysis," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 6(2), pages 345-74.
  16. Chan, K C & Christie, William G & Schultz, Paul H, 1995. "Market Structure and the Intraday Pattern of Bid-Ask Spreads for NASDAQ Securities," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 68(1), pages 35-60, January.
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