TY - JOUR
T1 - Measuring private information in a specialist market
AU - Lamoureux, Christopher G.
AU - Wang, Qin
N1 - Publisher Copyright:
© 2014 Elsevier B.V.
PY - 2015/1/1
Y1 - 2015/1/1
N2 - Since the reduced forms of the popular measures of asymmetric information in the price formation process are not nested within larger models we cannot evaluate their fit using standard statistical tools. Furthermore, pairwise correlations amongst the measures are small. We benchmark these measures cross-sectionally to realized specialist loss rates (using alternatively volume and number of trades) in the TORQ data. While five of the six measures are significantly correlated with this benchmark, this is only because they are correlated with the specialist participation rate. We infer that the measures do not measure private information in order flow, even in the setting for which they are designed.
AB - Since the reduced forms of the popular measures of asymmetric information in the price formation process are not nested within larger models we cannot evaluate their fit using standard statistical tools. Furthermore, pairwise correlations amongst the measures are small. We benchmark these measures cross-sectionally to realized specialist loss rates (using alternatively volume and number of trades) in the TORQ data. While five of the six measures are significantly correlated with this benchmark, this is only because they are correlated with the specialist participation rate. We infer that the measures do not measure private information in order flow, even in the setting for which they are designed.
KW - Measuring adverse selection
KW - Realized specialist loss rate
KW - Specialist market
KW - Specialist participation rate
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U2 - 10.1016/j.jempfin.2014.10.002
DO - 10.1016/j.jempfin.2014.10.002
M3 - Article
AN - SCOPUS:85028142079
SN - 0927-5398
VL - 30
SP - 92
EP - 119
JO - Journal of Empirical Finance
JF - Journal of Empirical Finance
ER -