Estimating the proportion of informed and speculative traders in financial markets: evidence from exchange rate

Ping-Chen Tsai () and Chi-Ming Tsai
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Ping-Chen Tsai: National Sun Yat-sen University
Chi-Ming Tsai: Southern Taiwan University of Science and Technology

Journal of Economic Interaction and Coordination, 2021, vol. 16, issue 3, No 1, 443-470

Abstract: Abstract We study the Glosten–Milgrom model and estimate the proportion of informed traders or speculators using bid–ask spread and price range. The GM model is generalized in terms of a key parameter $$ \theta $$ θ —the probability of making a correct decision by an agent. Informed traders have $$ \theta = 1 $$ θ = 1 , and uninformed traders have $$ \theta = 1/2 $$ θ = 1 / 2 in the GM model. Speculators are defined to be agents with $$ 1/2 1/2 $$ θ ¯ > 1 / 2 using simple trading rules within short trading horizons and net of transaction cost.

Keywords: Bid–ask spread; Asymmetric information; Speculator; Range; Market microstructure (search for similar items in EconPapers)
JEL-codes: F31 G15 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s11403-020-00308-z

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