Estimating the Proportion of Informed Trade in Call Auctions

Juan Raposo (), Fabrice Riva, Francisco Sogorb and Jos van Bommel
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Juan Raposo: DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique
Fabrice Riva: DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique
Francisco Sogorb: Universidad Cardenal Herrera-CEU - CEU-UCH - Universidad Cardenal Herrera-CEU
Jos van Bommel: Luxembourg School of Finance - uni.lu - Université du Luxembourg = University of Luxembourg = Universität Luxemburg

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Abstract: We show that the distribution of trading volume in call auctions is indicative of the proportion of informed trade. We use the Kyle (1985) model to predict the shape of the volume distribution as a function of the proportion of informed trade. If most liquidity demanders are uninformed, there is likely to be significant wash trade among them, resulting in Normal-like volume distributions. If most liquidity demanders are informed, their trades are correlated so that the volume distribution is skewed and has a higher coefficient of variation.

Keywords: market microstructure; liquidity; call auctions (search for similar items in EconPapers)
Date: 2011-02-01
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00696342v1
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