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Informed and Uninformed Trading in the EUR/PLN Spot Market

  • Katarzyna Bien

    ()

    (National Bank of Poland and Warsaw School of Economics)

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    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.

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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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    Paper provided by Department of Applied Econometrics, Warsaw School of Economics in its series Working Papers with number 53.

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    Length: 33 pages
    Date of creation: 30 May 2011
    Date of revision:
    Handle: RePEc:wse:wpaper:53
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    1. Martin D. D. Evans & Richard K. Lyons, 2007. "Exchange Rate Fundamentals and Order Flow," NBER Working Papers 13151, National Bureau of Economic Research, Inc.
    2. repec:cup:cbooks:9780521687270 is not listed on IDEAS
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