How widespread is informed trading on the Czech financial market?

Informed trading is one of the key factors that can obstruct the efficient functioning of a financial market. The authors examine the extent of inform ed trading in the Czech Republic, where the financial market is alleged to be driven by informed trading. In applying the model developed by Easley et al. (1996), the authors find that informed trading in the most liquid of C zech stocks is indeed extensive. According to their estimates, the probabil ity that a trade is information driven stands at 32 percent. This is a much higher probability than the estimates for low-liquidity-stock trades on th e NYSE. Moreover, order-flow volatility is also higher, which increases the risk market makers face in the Czech Republic. The results thus strongly c ontradict earlier findings, which suggested that the extent of informed tra ding in the Czech Republic is negligible, and confirm the informal claims o f market participants that informed trading is in fact significant.