Information Content in Small and Large Trades

We estimate the probabilities of informed trading (PIN) for small and large trades and then investigate their determinants. We model a competitive dealership market for equities with two order sizes using a Poisson process mixture model and use TORQ data to estimate the parameters for the model via the method of maximum likelihood. The probabilities of informed trading (PIN) for small and large trades are functions of the resulting parameter estimates. In our empirical tests, we find that although for the majority of securities information contents in small and large trades are similar, the average PIN for small trades is significantly higher than that in large trades. We also find that trading volume and institutional trading are the primary determinants of information content in small and large trades respectively but not of both. A further investigation of the securities with the largest differences in terms of PINs for small and large trades reveals that trade size alone distinguishes those firms from the rest- all eight firms reside in the lowest quartile in terms of average trade size