Dynamic probability of informed trading and price movements: evidence from the CSI300 index futures market

ABSTRACT

This article first uses dynamic probability of informed trading (DPIN) for measuring the probability of informed trading in the CSI300 index futures market and proves its validity for predicting future price movements. Instead of using the original Lee–Ready algorithm, this study uses bulk volume classification (BVC) for classifying volume. BVC could effectively improve the predictive power of DPIN for future price movements. The relationship between DPIN and returns indicates that informed buying raises the futures price while informed selling moves the futures price downward. DPIN could effectively capture price information in the index future markets in China.

KEYWORDS:

• DPIN
• informed trading probability
• index futures
• price movements
• bulk volume classification

JEL CLASSIFICATION:

• C53
• G15

Disclosure statement

No potential conflict of interest was reported by the authors.