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What does PIN identify? Evidence from the T-bill market

Author

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  • Akay, Ozgur (Ozzy)
  • Cyree, Ken B.
  • Griffiths, Mark D.
  • Winters, Drew B.

Abstract

The probability of informed trading (PIN) measure has been increasingly used in empirical research in finance. However, there is a growing debate as to whether PIN measures information-based or liquidity-based trading. We contribute to the discussion by estimating PIN using transaction data for one-month T-bills. Our PIN estimates exceed those reported for equities, despite it being unlikely that the probability of informed trading is higher in T-bills than equities. We conclude that PIN identifies trading clusters and that the source of the clustering depends on the economics of the market. The economics of the T-bill market suggest discretionary liquidity traders are the likely source of the clustering.

Suggested Citation

  • Akay, Ozgur (Ozzy) & Cyree, Ken B. & Griffiths, Mark D. & Winters, Drew B., 2012. "What does PIN identify? Evidence from the T-bill market," Journal of Financial Markets, Elsevier, vol. 15(1), pages 29-46.
    • Handle: RePEc:eee:finmar:v:15:y:2012:i:1:p:29-46
    DOI: 10.1016/j.finmar.2011.08.005
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    Citations

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    Cited by:

    1. Kitamura, Yoshihiro, 2016. "The probability of informed trading measured with price impact, price reversal, and volatility," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 42(C), pages 77-90.
    2. David Abad & Juan P. Sánchez-Ballesta & José Yagüe, 2017. "Audit opinions and information asymmetry in the stock market," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 57(2), pages 565-595, June.
    3. 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.
    4. Thomas Pöppe & Michael Aitken & Dirk Schiereck & Ingo Wiegand, 2016. "A PIN per day shows what news convey: the intraday probability of informed trading," Review of Quantitative Finance and Accounting, Springer, vol. 47(4), pages 1187-1220, November.
    5. repec:zbw:bofrdp:2018_001 is not listed on IDEAS
    6. Lof, Matthijs & Bommel, Jos van, 2018. "Asymmetric information and the distribution of trading volume," Research Discussion Papers 1/2018, Bank of Finland.
    7. David Abad & Juan Pedro Sánchez-Ballesta & José Yagüe, 2017. "The short-term debt choice under asymmetric information," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 8(3), pages 261-285, August.
    8. Lof, Matthijs & van Bommel, Jos, 2023. "Asymmetric information and the distribution of trading volume," Journal of Corporate Finance, Elsevier, vol. 82(C).
    9. Ke, Wen-Chyan & Chen, Hueiling & Lin, Hsiou-Wei William, 2019. "A note of techniques that mitigate floating-point errors in PIN estimation," Finance Research Letters, Elsevier, vol. 31(C).
    10. Moonsoo Kang & Kiseok Nam, 2015. "Informed trade and idiosyncratic return variation," Review of Quantitative Finance and Accounting, Springer, vol. 44(3), pages 551-572, April.
    11. David Abad & M. Fuensanta Cutillas†Gomariz & Juan Pedro Sánchez†Ballesta & José Yagüe, 2018. "Does IFRS Mandatory Adoption Affect Information Asymmetry in the Stock Market?," Australian Accounting Review, CPA Australia, vol. 28(1), pages 61-78, March.
    12. Jang, In Ji & Kang, Namho & Yezegel, Ari, 2022. "Common ownership, price informativeness, and corporate investment," Journal of Banking & Finance, Elsevier, vol. 135(C).
    13. repec:zbw:bofrdp:001 is not listed on IDEAS
    14. Dean Katselas & Baljit K. Sidhu & Tom Smith & Chuan Yu, 2019. "Independently Certified Industry‐specific Disclosures to the Capital Market: The JORC Code in the Australian Mining Industry," Abacus, Accounting Foundation, University of Sydney, vol. 55(1), pages 128-179, March.
    15. Rahul Ravi, 2015. "Is there Asymmetric Information About Systematic Factors? Evidence from Commonality in Liquidity," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 9(2), pages 93-104.

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    More about this item

    Keywords

    PIN; Liquidity; Asymmetric information; Informed trading;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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