Dynamics of Symmetric Informed Trading and Order Flow Shock at Tehran Exchange Stock: A Hidden Markov Model Approach
Sadeq Rezaei () and
Mohsen Mehrara ()
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Sadeq Rezaei: Ph.D. in Financial Economics, Faculty of Economics, University of Tehran
Mohsen Mehrara: Professor in Economics, Faculty of Economics, University of Tehran
Quarterly Journal of Applied Theories of Economics, 2021, vol. 8, issue 1, 25-54
This paper aiming to accurately estimate the dynamic measures of trades stemming from information asymmetry and diverse opinions among investors. For this purpose, we estimated the daily measures of probability of informed trading (PIN) and symmetric-order flow shock (PSOS) 32 Tehran Stock Exchange (TSE) stocks belonging to 11 industries of TSE during the period from 2015 to 2018. PIN is an indicator of asymmetric information risk and PSOS indicating diverse opinions among investors whose variations and intensity play an important role in price formation and stock liquidity. Results indicate that the minimum and maximum values of PIN and PSOS indices are significantly different from their annual and four-year average. Accordingly, information risk varies remarkably along time and there is a substantial need to use dynamic models to study this risk. In most stocks that have higher market value experience less risks of asymmetric information and diverse opinions shocks than other stocks. Entirely, it appears that the average and the maximum of information risk and diverse opinions shocks at TSE are higher than in developed markets. Also, exchange rate shock in 2018 in Iran considerably increased diverse opinions on petrochemical and metal industries.
Keywords: Informed Trading; Symmetric Order Shock; Microstructure Model; Hidden Markov Model (search for similar items in EconPapers)
JEL-codes: C58 G10 G14 (search for similar items in EconPapers)
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