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Probability of Informed Trading and Volatility for an ETF

Author

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  • Dimitrios Karyampas

    (Department of Economics, Mathematics & Statistics, Birkbeck)

  • Paola Paiardini

    (Department of Economics, Mathematics & Statistics, Birkbeck)

Abstract

We use the new procedure developed by Easley et al. to estimate the Probability of Informed Trading (PIN), based on the volume imbalance: Volume-Synchronized Probability of Informed Trading (VPIN). Unlike the previous method, this one does not require the use of numerical methods to estimate unobservable parameters. We also relate the VPIN metric to volatility measures. However, we use most efficient estimators of volatility which consider the number of jumps. Moreover, we add the VPIN to a Heterogeneous Autoregressive model of Realized Volatility to further investigate its relation with volatility. For the empirical analysis we use data on the exchange traded fund (SPY).

Suggested Citation

  • Dimitrios Karyampas & Paola Paiardini, 2011. "Probability of Informed Trading and Volatility for an ETF," Birkbeck Working Papers in Economics and Finance 1101, Birkbeck, Department of Economics, Mathematics & Statistics.
    • Handle: RePEc:bbk:bbkefp:1101
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    File URL: https://eprints.bbk.ac.uk/id/eprint/7507
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    References listed on IDEAS

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    Cited by:

    1. Paparizos, Panagiotis & Dimitriou, Dimitrios & Kenourgios, Dimitris & Simos, Theodore, 2016. "On high frequency dynamics between information asymmetry and volatility for securities," The Journal of Economic Asymmetries, Elsevier, vol. 13(C), pages 21-34.

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