Do Informed Traders Prefer Automated Electronic Markets?

Abstract

This study investigated the differences in the probability of informed trading (PIN), separately, in the two components of the modern hybrid market structure: the newer automated, electronic market and the traditional open-outcry floor market. Using transaction level data, I compared Eurodollar futures contracts exchanged on the floor of the Chicago Mercantile Exchange with those exchanged on the CME’s Globex from January 3, 2000, through December 29, 2006. The findings in this study indicate that annual PINs tended to be higher in the automated market in every year. This difference decreased over the sample period and by 2006, the difference in PIN estimates between the two markets was very small in the transacting of contracts with nearterm expirations.