Information Based Trades in Tehran Stock Exchange

Information asymmetry is unequal information among traders which leads to information risk. Easley et al. developed a microstructure model that measures probability of private information based trades entitled as PIN.This paper estimates probability of information based trades in Tehran Stock Exchange and investigates its relationship with firm size. We also study information risk pricing by examining whether PIN can explain stock return. In addition, we examine monthly effect of PIN to see whether probability of private information based trade has different behavior in various months.Our results show that there is a negative correlation between PIN and firm size while on the other hand, a 10 percent increase in PIN leads to 2.8 percent increase in stock return. We find that PIN rise in 10th month of year and diminish in 12th month of year.

Keywords:

Market Microstructure , Private Information , PIN , Information Risk , Calendar Effects