Estimating Adjusted Probability of Informed Trading; Evidence from the Iranian Stock Market
Quarterly Journal of Securities Exchange

Quarterly Journal of Securities Exchange

Estimating Adjusted Probability of Informed Trading; Evidence from the Iranian Stock Market

Document Type : Original Article

Author
Associate Professor, Department of Economics, Allameh Tabataba’i University, Tehran, Iran
Abstract
The level of information asymmetry in financial markets significantly influences market structure, stock prices, and investment risk. In addition, optimal policy design, particularly the implementation of trading constraints by regulators and the determination of trading strategies by traders, requires an awareness of the extent of information asymmetry. In this paper, we estimate the level of information asymmetry using 3750 stocks/quarters data (125 companies across 14 industries, constituting about 70% of Iran's stock market value, during 1395-Q1 to 1402-Q2) by employing the adjusted probability of informed trading (AdjPIN) model. The results indicate that, first; the Iranian stock market has faced an average information asymmetry of 20.6%. Second, commodity-based industries (petroleum Products, metal ores, and basic metals) have experienced the lowest informed trading, and on the other hand, domestic industries (insurance, pharmaceuticals, and banks) have recorded the highest information asymmetry. Third, the 10 companies with the lowest information asymmetry are among the largest firms listed in stock exchange market that are classified in commodity-based industries, while the 10 companies with the highest probability of informed trading operate in the financial intermediary service and pharmaceutical sectors. Fourth, the highest level of information asymmetry occurred both at in market level and most of industries and firms in the first two quarters of 1399. Overall, the findings shed light on the presence and extent of information asymmetry in the Iranian stock market, providing valuable insights for traders and regulators alike.
Keywords

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