Informed and Uninformed Trading in the EUR/PLN Spot Market

Katarzyna Bien (katarzyna.bien@sgh.waw.pl)
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Katarzyna Bien: National Bank of Poland and Warsaw School of Economics

No 53, Working Papers from Department of Applied Econometrics, Warsaw School of Economics

Abstract: 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.

Keywords: probability of informed trading; dynamic EKOP model; intraday liquidity modeling (search for similar items in EconPapers)
JEL-codes: F31 G15 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2011-05-30
New Economics Papers: this item is included in nep-cta and nep-mst
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