Estimating the Probability of Informed Trading (PIN) in Iranian Large-Listed Companies: A Bayesian Approach

Articles in Press

Document Type : Research Paper

Authors

Faculty of Economics, Allameh Tabataba'i University, Tehran, Iran.

Abstract

Information asymmetry profoundly influences market formation, stock prices, and investment risk within financial markets. Effective policymaking and trading strategy formulation necessitates a nuanced understanding of information asymmetry levels. This article employs a Bayesian methodology within the financial market microstructure framework to estimate information asymmetry across 25 large listed companies from 1398:Q1 to 1402:Q3. The findings reveal several key insights: First, the Probability of Informed Trading (PIN) in the Iranian stock market stands at 21.1%, notably higher than in certain other countries. Second, PIN surged sduring the 1399 stock market bubble, surpassing 1.7 times the average PIN observed in other periods. Third, the banking sector exhibits the highest probability of news events, likely influenced by substantial investments in listed and non-listed companies. Fourth, "Midco", from the metal ore mining industry, demonstrated a PIN of 26%, while "Fakhuz", from the basic metals industry, exhibited the lowest information asymmetry level at 18%. These findings underscore the critical role of understanding information asymmetry in designing optimal policymaking and investment strategies within financial markets.

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Iranian Economic Review

Articles in Press, Accepted Manuscript
Available Online from 14 December 2024

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