Assessing informed trading measures against material mining progress reports
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A method for assessing measures of informed trading is proposed, under a framework of minimal assumptions about informed trader behaviour. The method is applied in the setting of progress reports made by mining firms. Two informed trading measures are assessed: PIN (probability of informed trading; Easley, Kiefer, O’Hara and Paperman 1996) and limit order book slope (Næs and Skjeltorp 2006). PIN is found to be ineffective, at least in this setting given the assumptions. It is found that buyer initiated trading surges prior to the release of both good and bad material news. This and low liquidity are offered as explanations for PIN’s failure. Limit order book slope is found to be weakly predictive of informed trading, but it is unable to distinguish between buyer and seller driven informed trading. The method may be applied to other informed trading measures in this setting or in others. This thesis is of interest to academics, market regulators and other users of informed trading measures.
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