Probability of Informed Trading and Volatility for an ETF

Dimitrios Karyampas and Paola Paiardini
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Dimitrios Karyampas: Department of Economics, Mathematics & Statistics, Birkbeck

No 1101, Birkbeck Working Papers in Economics and Finance from Birkbeck, Department of Economics, Mathematics & Statistics

Abstract: We use the new procedure developed by Easley et al. to estimate the Probability of Informed Trading (PIN), based on the volume imbalance: Volume-Synchronized Probability of Informed Trading (VPIN). Unlike the previous method, this one does not require the use of numerical methods to estimate unobservable parameters. We also relate the VPIN metric to volatility measures. However, we use most efficient estimators of volatility which consider the number of jumps. Moreover, we add the VPIN to a Heterogeneous Autoregressive model of Realized Volatility to further investigate its relation with volatility. For the empirical analysis we use data on the exchange traded fund (SPY).

Date: 2011-06
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https://eprints.bbk.ac.uk/id/eprint/7507 First version, 2011 (application/pdf)

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