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Inferring Information Frequency and Quality

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Author Info

  • John Owens
  • Douglas G. Steigerwald

Abstract

We develop a microstructure model that, in contrast to previous models, allows one to estimate the frequency and quality of private information. In addition, the model produces stationary asset price and trading volume series. We find evidence that information arrives frequently within a day and that this information is of high quality. The frequent arrival of information, while in contrast to previous microstructure model estimates, accords with nonmodel-based estimates and the related literature testing the mixture-of-distributions hypothesis. To determine if the estimates are correctly reflecting the arrival of latent information, we estimate the parameters over half-hour intervals within the day. Comparison of the parameter estimates with measures of persistent price changes reveals that the estimates reflect the arrival of latent information. Copyright 2005, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/jjfinec/nbi024
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Bibliographic Info

Article provided by Society for Financial Econometrics in its journal Journal of Financial Econometrics.

Volume (Year): 3 (2005)
Issue (Month): 4 ()
Pages: 500-524

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Handle: RePEc:oup:jfinec:v:3:y:2005:i:4:p:500-524

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Cited by:
  1. Francis X. Diebold & Georg H. Strasser, 2008. "On the Correlation Structure of Microstructure Noise: A Financial Economic Approach," Boston College Working Papers in Economics 693, Boston College Department of Economics, revised 24 Apr 2012.
  2. Kelly, David L. & Steigerwald, Douglas G, 2003. "Private Information and High-Frequency Stochastic Volatility," University of California at Santa Barbara, Economics Working Paper Series qt00n4h4mw, Department of Economics, UC Santa Barbara.
  3. Diebold, Francis X. & Strasser, Georg H., 2008. "On the correlation structure of microstructure noise in theory and practice," CFS Working Paper Series 2008/32, Center for Financial Studies (CFS).
  4. Lim, Bryan Y., 2011. "Short-sale constraints and price bubbles," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2443-2453, September.

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