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The probability of informed trading measured with price impact, price reversal, and volatility

Listed author(s):
  • Kitamura, Yoshihiro

Contemporaneous and positive correlation between order flow and exchange rate is a stylized fact. I postulate that the order flow driven by informed trading has a significant price impact. I also do that little price reversal occurs in the subsequent period. The Markov-switching model provides probabilities of a significant price impact and little price reversal. I apply these probabilities to measure the probability of informed trading. The measure explains a greater share of the random walk component of price compared to other measures offered by previous studies.

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File URL: http://www.sciencedirect.com/science/article/pii/S1042443116300014
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Article provided by Elsevier in its journal Journal of International Financial Markets, Institutions and Money.

Volume (Year): 42 (2016)
Issue (Month): C ()
Pages: 77-90

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Handle: RePEc:eee:intfin:v:42:y:2016:i:c:p:77-90
DOI: 10.1016/j.intfin.2016.02.001
Contact details of provider: Web page: http://www.elsevier.com/locate/intfin

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