Price Discovery in Tick Time
AbstractIn this Paper we propose a tick time model for dealer quote interactions using ultra-high-frequency data. This model includes duration functions to measure the time dependence of volatility as well as information asymmetry. In order to assess price discovery we define several measures in tick time. These measures can be aggregated to calendar time and we define a comparable measure to Hasbrouck (1995) information shares. In our empirical part we examine the Island and Instinet Electronic Communication Networks, and three wholesale market makers for 20 actively traded stocks with varying liquidity at Nasdaq. Our results include that volatility does not increase with the duration between quote updates, and that longer quote durations lead to lower price discovery. In terms of price discovery we find that ECNs tend to dominate the liquid stocks, whereas market makers dominate the less liquid stocks.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4456.
Date of creation: Jun 2004
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- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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