The probability of informed trading measured with price impact, price reversal, and volatility

Yoshihiro Kitamura ()

Journal of International Financial Markets, Institutions and Money, 2016, vol. 42, issue C, 77-90

Abstract: Contemporaneous and positive correlation between order flow and exchange rate is a stylized fact. I postulate that the order flow driven by informed trading has a significant price impact. I also do that little price reversal occurs in the subsequent period. The Markov-switching model provides probabilities of a significant price impact and little price reversal. I apply these probabilities to measure the probability of informed trading. The measure explains a greater share of the random walk component of price compared to other measures offered by previous studies.

Keywords: Exchange rates; High-frequency data; Informed trading; Markov-switching model (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:42:y:2016:i:c:p:77-90

DOI: 10.1016/j.intfin.2016.02.001

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