How Widespread Is Informed Trading on the Czech Financial Market?

Jan Hanousek and Richard Podpiera

Czech Journal of Economics and Finance (Finance a uver), 2001, vol. 51, issue 7, 405-416

Abstract: Informed trading is one of the key factors that can obstruct the efficient functioning of a financial market. The authors examine the extent of informed trading in the Czech Republic, where the financial market is alleged to be driven by informed trading. In applying the model developed by Easley et al. (1996), the authors find that informed trading in the most liquid of Czech stocks is indeed extensive. According to their estimates, the probability that a trade is information driven stands at 32 percent. This is a much higher probability than the estimates for low-liquidity-stock trades on the NYSE. Moreover, order-flow volatility is also higher, which increases the risk market makers face in the Czech Republic. The results thus strongly contradict earlier findings, which suggested that the extent of informed trading in the Czech Republic is negligible, and confirm the informal claims of market participants that informed trading is in fact significant.

JEL-codes: G14 G15 (search for similar items in EconPapers)
Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:fau:fauart:v:51:y:2001:i:7:p:405-416

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