Parametric Estimation Of Probability Of Informed Trading With Moment Method

Market microstructure is a direction that has received much attention in recent years.It mainly studies the formation and discovery of prices in financial markets.For information-driven investors,their trading behavior will greatly affect stock prices.The inconsistent information that different investors have about the market will lead to stock prices not reflecting the complete information.This information asymmetry is an information risk and an important part of the financial market microstructure.The PIN model proposed by Easley,Kiefer,O’Hara and Paperman is the first direct measure of information asymmetry,which uses the ratio of the expected trading volume of informed traders to the total expected trading volume of the market to characterize the degree of information asymmetry.Based on the PIN model,this paper studies a probability of informed trading obtained by moment method(NPIN),and conducts an empirical analysis using the high-frequency data of Shanghai and Shenzhen 300 stock index futures.The empirical results show that NPIN successfully sends a strong early warning signal before the price plunges,and anticipates the emergence of a large number of informed traders.NPIN is applicable to China’s stock index futures market and can be used as a powerful tool for risk supervision in China’s trading market.Volume-synchronized probability of informed trading(VPIN)is a well-known index that can effectively predict extreme events.Its principle is to use the imbalance of trading volume to approximate the parameters.This paper also analyzes the accuracy of VPIN in prediction and compares it with NPIN.From an empirical point of view,two sample intervals in which the stock price falls sharply and remains relatively stable are selected for the study.The results show that when the stock price fluctuates sharply,VPIN shows a kind of behind-time,while NPIN is more effective in risk prediction of high-frequency trading;while NPIN remains relatively stable under the condition that the stock price only changes slightly,VPIN sends a strong warning signal,which shows that the approximation is overestimated and will affect investors’ true judgment of the market.