Measuring private information in a specialist market

• Pairwise correlations amongst the information asymmetry measures are small.
• Most measures are positively correlated with the model-free specialist loss rate.
• In particular, measures are only correlated with specialist participation rate.
• Measures do not measure private information in order flow.

Since the reduced forms of the popular measures of asymmetric information in the price formation process are not nested within larger models we cannot evaluate their fit using standard statistical tools. Furthermore, pairwise correlations amongst the measures are small. We benchmark these measures cross-sectionally to realized specialist loss rates (using alternatively volume and number of trades) in the TORQ data. While five of the six measures are significantly correlated with this benchmark, this is only because they are correlated with the specialist participation rate. We infer that the measures do not measure private information in order flow, even in the setting for which they are designed.