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Does PIN measure information? Informed trading effects on returns and liquidity in six emerging markets

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  • Agudelo, Diego A.
  • Giraldo, Santiago
  • Villarraga, Edwin

Abstract

Market microstructure models imply that informed trading reduces liquidity and moves prices in the direction of the information. We test this implication using the dynamic PIN model (Easley, Engle, O'Hara and Wu 2008) as a time-varying measure of informed trading in the six largest Latin America stock markets. Under alternative specifications and robustness tests, the results suggest that signed dynamic PIN is related to returns, as a proxy for information asymmetry rather than just liquidity effects. These results contribute to the ongoing discussion on whether PIN is a valid informed trading measure, and to a better understanding of price formation in emerging markets.

Suggested Citation

  • Agudelo, Diego A. & Giraldo, Santiago & Villarraga, Edwin, 2015. "Does PIN measure information? Informed trading effects on returns and liquidity in six emerging markets," International Review of Economics & Finance, Elsevier, vol. 39(C), pages 149-161.
  • Handle: RePEc:eee:reveco:v:39:y:2015:i:c:p:149-161
    DOI: 10.1016/j.iref.2015.04.002
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    Keywords

    Informed trading; Liquidity; PIN; Emerging markets; Market microstructure;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G19 - Financial Economics - - General Financial Markets - - - Other

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