We propose a new approach to measuring informed trading in individual securities based on a portfolio optimization model for investors facing information and liquidity shocks. These shocks induce speculative and liquidity-motivated order flow, taking into account the price impact of trading. The...

We propose a portfolio optimization approach to identifying private information. In our model, investors are exposed to liquidity and private information shocks and optimize their trading across stocks taking into account price impact (Kyle's Lambda). We obtain a very simple expression for a...