Intraday Trading Patterns: The Role of Timing

Katya Malinova and Andreas Park

Working Papers from University of Toronto, Department of Economics

Abstract: In a dynamic model of financial market trading multiple heterogeneously informed traders choose when to place orders. Better informed traders trade immediately, worse informed delay — even though they expect the public expectation to move against them. This behavior causes distinct intra-day patterns with decreasing (L-shaped) spreads and increasing (reverse L-shaped) volume and probability of informed trading (PIN). Competition increases market participation and causes more pronounced spread and less pronounced volume patterns. Systematic improvements in information increase spreads and volume. Very short-lived private information generates L- or reverse J-shaped volume patterns, which are further enhanced by competition.

Keywords: intraday patterns; asymmetric information; trade timing; microstructure (search for similar items in EconPapers)
JEL-codes: D82 G12 G14 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2009-08-01
New Economics Papers: this item is included in nep-cta and nep-mst
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