ScienceDirect Publication: Finance Research Letters
Tue, 19 Nov 2019 12:02:10 GMT language
Publication date: December 2019
Source: Finance Research Letters, Volume 31
Author(s): Wen-Chyan Ke, Hueiling Chen, Hsiou-Wei William Lin
This study aims at the estimation of the probability of informed trading (PIN), which may fail for stocks with high levels of trading activities due to a computer's floating-point exception (FPE). In this paper, we discuss two solutions of adopting scaled trade counts and reformulating the likelihood to estimate PIN for actively traded stocks. This study shows that, although scaled data mitigates the impact of the FPE, the effectiveness of scaled data, however, appears to underperform when users adopt the unsuitable expression of the likelihood function. In contrast, the remedy of reformulating the likelihood is more stable.