Informed Trading on Stock Market

The PIN measure is an empirically calculated estimation of the probability of informed trade. The aim of the current work is to estimate and analyze the PIN measure on several individual stocks as well as on the entire MICEX 10 index. The main result is that PIN for the stock market index is on average much higher than for individual stocks, and at the same time the stock index is typically more liquid than any individual stock. One possible explanation would be that the composition of traders investing on the index represents a more informed population than the general trading population, and is therefore more likely to trade strategically within the market. Additionally, the estimates show that during certain specific periods PIN measure is very high. There are two viable explanations: perhaps the composition of traders changes over time, or perhaps new information appears in these periods. Analyzing events during these periods reveals that they occur when changes in the Russian stock market were expected (e.g. presidential elections or active debates on the implementation of new tax policy). This suggests that investors’ expectations are a major driving force for the dynamics of the PIN measure. The value of this research hinges on the observation that PIN estimates appear unexpectedly informative: the results obtained shed light not only on the role of the PIN measure on the Russian stock market, but also on specific features of market microstructure and the trading process.