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Informed and Uninformed Trading in the EUR/PLN Spot Market

Author

Listed:
  • Katarzyna Bien

    (National Bank of Poland and Warsaw School of Economics)

Abstract

This paper examines an intraday activity of bank trading of the EUR/PLN currency pair via the Reuters Dealing 3000 Spot Matching System in 2007. On the grounds of the sequential trade model of Easley, Engle, O’Hara & Wu (2008), we can differentiate between the time-varying patterns for the strategic behavior of informed and uninformed (liquidity) traders. We present evidence for the particular hour-of-day seasonality pattern that characterizes the arrival of uninformed and informed trades. The conditional arrival rates for both trader categories enable the assessment of their interactions and are used to forecast a time-varying probability of informed trading (PIN). The predictions of PIN are used to test the impact of information heterogeneity on the instantaneous liquidity of the market, which is proxied by the bid-ask spread and the market depth.

Suggested Citation

  • Katarzyna Bien, 2011. "Informed and Uninformed Trading in the EUR/PLN Spot Market," Working Papers 53, Department of Applied Econometrics, Warsaw School of Economics.
    • Handle: RePEc:wse:wpaper:53
    as

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    File URL: http://kolegia.sgh.waw.pl/pl/KAE/struktura/IE/struktura/ZES/Documents/Working_Papers/aewp04-11.pdf
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    References listed on IDEAS

    as
    1. Martin D. D. Evans & Richard K. Lyons, 2017. "Exchange Rate Fundamentals and Order Flow," World Scientific Book Chapters, in: Studies in Foreign Exchange Economics, chapter 16, pages 645-724, World Scientific Publishing Co. Pte. Ltd..
    2. de Jong,Frank & Rindi,Barbara, 2009. "The Microstructure of Financial Markets," Cambridge Books, Cambridge University Press, number 9780521867849, January.
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    More about this item

    Keywords

    probability of informed trading; dynamic EKOP model; intraday liquidity modeling;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

    NEP fields

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