easy · Market Microstructure
According to the PIN (Probability of Informed Trading) model, if the rate of informed trader arrivals (μ) increases while uninformed arrivals (ε) remain constant, what happens to the market?
- The PIN increases and bid-ask spreads likely widen.
- The PIN remains constant but volatility increases.
- The PIN decreases and liquidity improves.
- The market becomes more efficient with narrower spreads.
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