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Quality of PIN estimates and the PIN-return relationship

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  • Yan, Yuxing
  • Zhang, Shaojun

Abstract

This paper provides new evidence concerning the probability of informed trading (PIN) and the PIN-return relationship. We take measures to overcome known estimation biases and improve the quality of quarterly PIN estimates. We use the average of a firm’s PIN estimates in four consecutive quarters to smooth out the effect of seasonal variation in trading activities. We find that when high-quality PIN estimates are used, the Fama–MacBeth cross-sectional regressions show stronger evidence for the positive PIN-return relationship than documented in the prior literature. This finding is robust to controls for the January, liquidity, and momentum effects.

Suggested Citation

  • Yan, Yuxing & Zhang, Shaojun, 2014. "Quality of PIN estimates and the PIN-return relationship," Journal of Banking & Finance, Elsevier, vol. 43(C), pages 137-149.
  • Handle: RePEc:eee:jbfina:v:43:y:2014:i:c:p:137-149
    DOI: 10.1016/j.jbankfin.2014.03.006
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    Cited by:

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    4. Quan Gan & Wang Chun Wei & David Johnstone, 2015. "A faster estimation method for the probability of informed trading using hierarchical agglomerative clustering," Quantitative Finance, Taylor & Francis Journals, vol. 15(11), pages 1805-1821, November.

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    More about this item

    Keywords

    Probability of informed trading; PIN-return relationship; Quality of PIN estimates;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • 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

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