The Validity of Models on the Information Content of Trades
Leif Brandes (),
Egon Franck () and
Erwin Verbeek ()
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Erwin Verbeek: Institute for Strategy and Business Economics, University of Zurich
No 120, Working Papers from University of Zurich, Institute for Strategy and Business Economics (ISU)
Measuring the (private) information content of stock trades is an important topic in market microstructure research. A common problem of stock markets is that it is ex-ante not possible to separate phases where the scope for asymmetric information is likely to be broader from those, where there is less exposure to traders with superior information. Such a distinction is needed to directly test the reliability of the proposed measures. This paper applies a unique data set from the betting market to provide such a direct test. We exploit the fact that betting occurs preplay, i.e. before match start, as well as inplay. We test the hypothesis that measures of private information will be less pronounced for inplay betting quotations (where all actions on the court are publicly observable, and trading on private information is unlikely) than for preplay betting quotations. Based on more than 23,000 transactions for the 2008 Wimbledon final, and five additional matches, we present first empirical support for this relation.
Keywords: betting; market microstructure; asymmetric information; vector autoregressive model (search for similar items in EconPapers)
JEL-codes: G14 G17 C33 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cta and nep-mst
Date: 2009, Revised 2010
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Persistent link: https://EconPapers.repec.org/RePEc:iso:wpaper:0120
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