Adverse Selektion på NADAQ OMX København i mikro-struktur perspektiv

Peter Just Urban Hansen

Student thesis: Master thesis


In this paper I estimate whether a sample of stocks at NASDAQ OMX Copenhagen is related to the probability of informed trading (PIN) for the period 6th of October – 30th of December 2009. Furthermore we highlight The Markets in Financial Instruments Directive (MiFID) to infer details which could give rise to adverse selection problems. That is Best Execution and investor protection. I use a sequential trade model developed by Easley and O’Hara to estimate PIN. The overall finding is a risk of close to 17% of facing someone better informed. Although you should be cautious when comparing PIN estimates across exchanges due to different market design, classifying of trades etc. the result is thought to be at the same level as findings at the German stock market. Further I calculate the realized spread (LEE, 1992) by using trade data and decompose it in to three levels to indicate if the spread is subject to adverse selection. The three levels are < DKK 15.000, ≥ DKK 15.000 < DKK 50.000, ≥ DKK 50.000 and the results are striking. Theory advocate the possibility of systematic behavior in spreads as U-shaped. My data support this finding. During the trading day, the effective spread deviates with up to 50%, which indicate that an investor should be aware of his market entry or selective with regards to which type of order he chooses. The same behavior is observed for volume.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2010
Number of pages74