Informed and Uninformed Trading in the EUR/PLN Spot Market
AbstractThis 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.
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Bibliographic InfoPaper provided by Department of Applied Econometrics, Warsaw School of Economics in its series Working Papers with number 53.
Length: 33 pages
Date of creation: 30 May 2011
Date of revision:
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More information through EDIRC
probability of informed trading; dynamic EKOP model; intraday liquidity modeling;
Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-06-11 (All new papers)
- NEP-CTA-2011-06-11 (Contract Theory & Applications)
- NEP-MST-2011-06-11 (Market Microstructure)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- de Jong,Frank & Rindi,Barbara, 2009.
"The Microstructure of Financial Markets,"
Cambridge University Press, number 9780521687270, December.
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