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| Author: | Chakravarty, S. Li, K. |
| Title: | A Bayesian analysis of dual trader informativeness in futures markets |
| Journal: | Journal of Empirical Finance
2003 : MAY, VOL. 10:3, p. 355-372 |
| Index terms: | TRADE INFORMATION FUTURES MARKETS |
| Language: | eng |
| Abstract: | The authors take a closer look at the question of whether dual traders in futures markets are indeed informed traders. Underpinning this question is the intuition that a dual trader's decision to trade on his own account is not random, but is endogenously determined by his expectations of trading profits related to this decision. The authors employ a simultaneous equations model with two endogenous variables: (1) the binary decision of own account trading (or not), and (2) the trading profit resulting from his own account trading. The authors' test of whether dual traders are informed traders comprises of estimating the correlation between the error terms of the two equations in the authors' model, where one error term proxies for a dual trader's unobserved private information and the other captures his abnormal profit. |
SCIMA