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A Structural Approach To Information Shares

Author

Listed:
  • Oleg Korenok

    () (VCU)

  • Bruce Mizrach

    () (Rutgers University)

  • Stanislav Radchenko

    () (Goldman Sachs)

Abstract

We undertake a structural analysis of the Hasbrouck unobserved components and the Madhavan, Richardson, and Roomans microstructure models. We map carefully the relationship between the structural parameters and four alternative measures of price discovery: (1) Hasbrouck; (2) Harris-McInish-Wood; (3) deJong-Schotman; and (4) Yan-Zivot. We describe analytically problems with using each measure: negative information shares; non-uniqueness; and potential violations of market efficiency. Simulation evidence also describes fragile inferences about the uncertainty of share estimates, misleading implications about price discovery, and the pattern of price adjustment. In an application to the Nasdaq dual listing experiment in 2004, we fi nd that price discovery did not shift significantly towards the Nasdaq.

Suggested Citation

  • Oleg Korenok & Bruce Mizrach & Stanislav Radchenko, 2011. "A Structural Approach To Information Shares," Departmental Working Papers 201130, Rutgers University, Department of Economics.
  • Handle: RePEc:rut:rutres:201130
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    Citations

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    Cited by:

    1. Caporale, Guglielmo Maria & Girardi, Alessandro, 2013. "Price discovery and trade fragmentation in a multi-market environment: Evidence from the MTS system," Journal of Banking & Finance, Elsevier, vol. 37(2), pages 227-240.
    2. Ozturk, Sait R. & van der Wel, Michel & van Dijk, Dick, 2017. "Intraday price discovery in fragmented markets," Journal of Financial Markets, Elsevier, vol. 32(C), pages 28-48.
    3. Santos, Francisco Luna & Garcia, Márcio Gomes Pinto & Medeiros, Marcelo Cunha, 2015. "Price Discovery in Brazilian FX Markets," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 35(1), October.
    4. Sait R. Ozturk & Michel van der Wel & Dick van Dijk, 2015. "Why do Pit-Hours outlive the Pit?," Tinbergen Institute Discussion Papers 15-082/III, Tinbergen Institute.

    More about this item

    Keywords

    microstructure; information shares; structural model; MCMC estimation; dual listing;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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