A dynamic intraday measure of the probability of informed trading and firm-specific return variation

A central question in financial economics is how private information is incorporated into asset prices. A common method of measuring private information is the PIN measure, which uses statistical estimation of a sequential trade model of the trading process to estimate the probability of informed trading. A notable limiting feature of PIN is that one must aggregate very fine intraday data over very long macro horizons in order to estimate it. In this paper, our aim is to develop and implement a dynamic intraday measure of the probability of informed trading that circumvents this aggregation issue and allows for the measurement of information based trading activity at much higher frequencies. We then apply our dynamic intraday measure of the probability of informed trading to examine the relationship between private information and firm-specific return variation.