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Measuring price discovery: The variance ratio, the R2, and the weighted price contribution

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  • Jos, van Bommel

Abstract

We analyze the statistical properties of three price discovery measures: The variance ratio, the weighted price contribution (WPC), and the R2 of unbiasedness regressions. We find that, if the price process is a driftless martingale, only the WPC is an unbiased estimator for the return variance explained during a time interval. For autocorrelated processes with a drift, only the R2 of the unbiasedness regression is consistent, but it is biased for small samples.

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Bibliographic Info

Article provided by Elsevier in its journal Finance Research Letters.

Volume (Year): 8 (2011)
Issue (Month): 3 (September)
Pages: 112-119

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Handle: RePEc:eee:finlet:v:8:y:2011:i:3:p:112-119

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Keywords: Market microstructure Price discovery Weighted price contribution;

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