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| Author: | Odders-White, E.R. Ready, M.J. |
| Title: | The probability and magnitude of information events |
| Journal: | Journal of Financial Economics
2008 : JAN, VOL. 87:1, p. 227-248 |
| Index terms: | information probability stock markets |
| Language: | eng |
| Abstract: | Models of adverse selection risk generally assume that market makers offset expected losses to informed traders with expected gains from the uninformed. It is here recognizes that the expected loss captures a combination of two effects: (1) the probability that some traders have private information, and (2) the likely magnitude of that information. A maximum-likelihood approach is used to separately estimate the probability and magnitude of private information events for NYSE-listed stocks from 1993 through 2003. The results shed light on the price discovery process and have implications for many areas of finance. |
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