Detecting Information-Driven Trading in a Dealers Market

Jan Hanousek and František Kopøiva ()
Additional contact information
František Kopøiva: CERGE-EI, http://www.cerge.cuni.cz/
Authors registered in the RePEc Author Service: Frantisek Kopriva

Czech Journal of Economics and Finance (Finance a uver), 2011, vol. 61, issue 3, 204-229

Abstract: We focus on the extent of information-driven trading originating from order flows to capture the behavior of the market makers on an emerging market. We modified the classical Easley et al. (1996) model for the probability of informed trading using a jackknife approach in which trades of one particular market maker at a time are left out from the sum of all buys and sells. Using the estimates from the jackknife approach, for each market maker we test whether the order flows associated with the particular market maker behaved significantly differently from the others. Data from the Prague Stock Exchange SPAD trading platform are used to demonstrate our methodology. Finding significant differences in the probability of informed trading computed from order flows, we conclude that order flows could reveal the extent of information-driven trading and could potentially be used by regulatory authorities to identify suspicious behavior by market participants.

Keywords: dealers’ market; emerging markets; informed trading; trading systems (search for similar items in EconPapers)
JEL-codes: G14 G15 P34 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://journal.fsv.cuni.cz/storage/1212_hanousek.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fau:fauart:v:61:y:2011:i:3:p:204-229

Access Statistics for this article

More articles in Czech Journal of Economics and Finance (Finance a uver) from Charles University Prague, Faculty of Social Sciences Contact information at EDIRC.
Bibliographic data for series maintained by Natalie Svarcova ().