Nonlinear ACD model and informed trading: evidence from Shanghai stock exchange

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Nonlinear ACD model and informed trading: evidence from Shanghai stock exchange

Woon K. Wong¹, Dijun Tan, Yixiang Tian•Institutions (1)

01 Apr 2008-Research Papers in Economics (Cardiff University)-

TL;DR: In this paper, the authors fit a nonlinear log-ACD model to stocks listed on Shanghai Stock Exchange and found that when trading volume is high, empirical findings suggest presence of informed trading in both liquid and illiquid stocks.

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Abstract: Dufour and Engle (J. Finance (2000) 2467) find evidence of an increased presence of informed traders when the NYSE markets are most active. No such evidence, however, can be found by Manganelli (J. Financial Markets (2005) 377) for the infrequently traded stocks. In this paper, we fit a nonlinear log-ACD model to stocks listed on Shanghai Stock Exchange. When trading volume is high, empirical findings suggest presence of informed trading in both liquid and illiquid stocks. When volume is low, market activity is likely due to liquidity trading. Finally, for the actively traded stocks, our results support the price formation model of Foster and Viswanathan (Rev. Financial Studies (1990) 593).

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San Miguel

01 Jan 2014

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Journal Article•DOI•

Continuous Auctions and Insider Trading

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Albert S. Kyle

01 Nov 1985-Econometrica

9,341 citations

"Nonlinear ACD model and informed tr..." refers background in this paper

...For example, Holden and Subrahmanyam (1992) generalize Kyle (1985) model to incorporate competition among multiple risk-averse insiders and demonstrate that competition among insiders is associated with high trading volume and rapid revelation of private information....
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Journal Article•DOI•

A Theory of Intraday Patterns: Volume and Price Variability

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Anat R. Admati¹, Paul Pfleiderer¹•Institutions (1)

Stanford University¹

01 Jan 1988-Review of Financial Studies

TL;DR: In this paper, the authors developed a theory that concentrated trading patterns arise endogenously as a result of the strategic behavior of liquidity traders and informed traders and provided a partial explanation for some of the recent empitical findings concerning the patterns of volume and price variability in intraday transaction data.

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Abstract: This article develops a theory in which concentrated-trading patterns arise endogenously as a result of the strategic behavior of liquidity traders and informed traders. Our results provide a partial explanation for some of the recent empitical findings concerning the patterns of volume and price variability in intraday transaction data. In the last few years, intraday trading data for a number of securities have become available. Several empirical studies have used these data to identify various patterns in trading volume and in the daily behavior of security prices. This article focuses on two of these patterns; trading volume and the variability of returns. Consider, for example, the data in Table 1 concerning shares of Exxon traded during 1981.1 The U-shaped pattern of the average volume of shares traded-namely, the heavy trading in the beginning and the end of the trading day and the relatively light trading in the middle of the day-is very typical and has been documented in a number of studies. [For example,Jain andJoh (1986) examine hourly data for the aggregate volume on the NYSE, which is reported in the Wall StreetJournal, and find the same pattern.] Both the variance of price changes

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3,315 citations

"Nonlinear ACD model and informed tr..." refers background in this paper

...Since it is theoretically plausible that (discretionary) liquidity trading also causes concentrated trading (see Admati and Pfleiderer, 1988), the advantage of (6) is to allow for concentrated trading to be caused by informed trading at certain periods of time (say, when volume is high), as well as…...
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...According to Admati and Pfleiderer (1988), Dufour and Engle (2000), Manganelli (2005) and others, if the high trading intensity is attributed to informed trading, then price volatility is high.6 That is, volatility is positively related with trading intensity and negatively associated with…...
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Journal Article•DOI•

Price, trade size, and information in securities markets*

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David Easley¹, Maureen O'Hara¹•Institutions (1)

Cornell University¹

01 Sep 1987-Journal of Financial Economics

TL;DR: In this paper, the effect of trade size on security prices was investigated and it was shown that informed traders tend to trade larger amounts at any given price, and market makers' pricing strategies must also depend on trade size.

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2,287 citations

Journal Article•DOI•

Autoregressive conditional duration: a new model for irregularly spaced transaction data

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Robert F. Engle, Jeffrey R. Russell

01 Sep 1998-Econometrica

TL;DR: In this article, an autoregressive conditional duration (ACD) model is proposed for the analysis of data which arrive at irregular intervals, which treats the time between events as a stochastic process and proposes a new class of point processes with dependent arrival rates.

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Abstract: This paper proposes a new statistical model for the analysis of data which arrive at irregular intervals. The model treats the time between events as a stochastic process and proposes a new class of point processes with dependent arrival rates. The conditional intensity is developed and compared with other self-exciting processes. Because the model focuses on the expected duration between events, it is called the autoregressive conditional duration (ACD) model. Asymptotic properties of the quasi maximum likelihood estimator are developed as a corollary to ARCH model results. Strong evidence is provided for duration clustering for the financial transaction data analyzed; both deterministic time-of-day effects and stochastic effects are important. The model is applied to the arrival times of trades and therefore is a model of transaction volume, and also to the arrival of other events such as price changes. Models for the volatility of prices are estimated with price-based durations, and examined from a market microstructure point of view.

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1,881 citations

"Nonlinear ACD model and informed tr..." refers background or methods in this paper

...The Autoregressive Conditional Duration (ACD) model of Engle and Russell (1998) forms the basis for various models of irregularly spaced transaction data; see, e.g., the Ultra-High-Frequency GARCH model by Engle (2000), the log-ACD model by Bauwens and Giot (2000), the nonlinear ACD model by Zhang,…...
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...< Insert Table 1: Sample stocks > Similar to microstructure variables such as spread and volume, duration has a strong intraday periodicity; see, e.g., Engle and Russell (1998), Andersen and Bollerslev (1997) and Martens (2001)....
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Journal Article•DOI•

Constraints on short-selling and asset price adjustment to private information

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Douglas W. Diamond¹, Robert E. Verrecchia²•Institutions (2)

University of Chicago¹, University of Pennsylvania²

01 Jun 1987-Journal of Financial Economics

TL;DR: In this paper, the effects of short-sale constraints on the speed of adjustment (to private information) of security prices are modeled. But short-sellers do not bias prices upward, while non-prohibitive costs have the reverse effect.

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1,866 citations

"Nonlinear ACD model and informed tr..." refers background in this paper

...Nonlinear ACD Model and Informed Trading: Evidence from Shanghai Stock Exchange Woon K Wong, Dijun Tan and Yixiang Tian Paper IMRU 080402 Nonlinear ACD Model and Informed Trading: Evidence from Shanghai Stock Exchange Woon K. Wong ＊ Investment Management Research Unit Cardiff Business School Dijun Tan School of Management University of Electronic Science and Technology Yixiang Tian School of Management University of Electronic Science and Technology 28 January 2008 ＊Corresponding author: Aberconway Building, Colum Drive, Cardiff, CF10 3EU, United Kingdom....
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...The theoretical motivations for the study on the role of time between transactions can be traced back to Diamond and Verrecchia (1987) and Easley and O’Hara (1992)....
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...…Informed Trading: Evidence from Shanghai Stock Exchange Woon K. Wong ＊ Investment Management Research Unit Cardiff Business School Dijun Tan School of Management University of Electronic Science and Technology Yixiang Tian School of Management University of Electronic Science and Technology 28…...
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Nonlinear ACD model and informed trading: evidence from Shanghai stock exchange

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"Nonlinear ACD model and informed tr..." refers background in this paper

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"Nonlinear ACD model and informed tr..." refers background in this paper

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