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The probability of informed trading in the Brazilian stock market

Author

Listed:
  • Orleans Silva Martins

    (Universidade Federal da Paraíba)

  • Edilson Paulo

Abstract

This paper aims to investigate the existence of insider trading in the Brazilian stock market. For this, we estimate the probability of informed trading (PIN) of 229 stocks during the years 2010 and 2011, using the model of Easley et al. (2002). In the results, it was found that the average PIN of these stocks was 24.9%, suggesting the existence of informed trading in that period. Considering the segment of corporate governance, the stocks listed on Level 2 had the lowest average PIN (24.4%), while stocks on Level 1 had the highest average (25.6%). Considering the classes of stock, the average PIN of common stocks was 24.2% and the average PIN of preferred stocks was 26.0%, indicating that the stocks with voting rights had lower information asymmetry. Still, it was found that the relationship between greater and lesser liquidity PIN was only confirmed for common stocks with high liquidity.

Suggested Citation

  • Orleans Silva Martins & Edilson Paulo, 2013. "The probability of informed trading in the Brazilian stock market," Brazilian Review of Finance, Brazilian Society of Finance, vol. 11(2), pages 249-280.
    • Handle: RePEc:brf:journl:v:11:y:2013:i:2:p:249-280
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    Cited by:

    1. Ripamonti, Alexandre, 2016. "Corwin-Schultz bid-ask spread estimator in the Brazilian stock market," MPRA Paper 79459, University Library of Munich, Germany.

    More about this item

    Keywords

    information asymmetry; private information; probability of informed trading;
    All these keywords.

    JEL classification:

    • 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
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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