Defining the activities of informed traders in stock markets
Importance The research of the impact of informed traders (major management companies, brokers, banks, and non-governmental pension funds) on trading dynamics in the stock markets is necessary for detecting low levels of liquidity trading, to determine price motion patterns and to verify the compliance with the principles of fair and honest trade. Objectives The paper deals with the research of market agents’ behavior to assess the participation of informed traders in trade transactions. Methods To build a mathematical model, we applied vector autoregression, recorded for single-point increments of quotation futures and an underlying asset on it. The paper formulated the generalized criterion, which enables to determine whether there is an information-based trading in the stock market, because an impact on the price of big players should exceed an impact that is generated by private, or “noise” investors. Additionally, we used the theory of stability of vector autoregression processes. The study suggests the procedure aimed at detecting informed traders’ transactions in intraday trading with risky assets and their futures trading in stock markets. The article provides calculations for USD/RUB forex currency pair and the Brent crude oil. Results The paper identifies the activity of big knowledgeable traders within the intraday trading in the Russian stock exchanges. Since the MICEX’s FORTS section is focused on professional investors, it is easier to determine their presence in futures trading in comparison with the purchase and sale of other financial instruments. Conclusions and Relevance Five- and ten-minute price quotations were not much instrumental while we were performing a numerical analysis. However, the informed trading activity in the developing Russian market is easier to identify, when a more comprehensive range of financial instruments is used.