International price discovery in the presence of microstructure noise
This paper addresses and resolves the issue of microstructure noise when measuring the relative importance of home and U.S. market in the price discovery process of Canadian interlisted stocks. In order to avoid large bounds for information shares, previous studies applying the Cholesky decomposition within the Hasbrouck (1995) framework had to rely on high frequency data. However, due to the considerable amount of microstructure noise inherent in return data at very high frequencies, these estimators are distorted. We offer a modified approach that identifies unique information shares based on distributional assumptions and thereby enables us to control for microstructure noise. Our results indicate that the role of the U.S. market in the price discovery process of Canadian interlisted stocks has been underestimated so far. Moreover, we suggest that rather than stock specific factors, market characteristics determine information shares.
|Date of creation:||2008|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +49 (0)69 798-30050
Fax: +49 (0)69 798-30077
Web page: http://www.ifk-cfs.de/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- de Jong, Frank, 2002. "Measures of contributions to price discovery: a comparison," Journal of Financial Markets, Elsevier, vol. 5(3), pages 323-327, July.
- F. M. Bandi & J. R. Russell, 2008. "Microstructure Noise, Realized Variance, and Optimal Sampling," Review of Economic Studies, Oxford University Press, vol. 75(2), pages 339-369.
- Baillie, Richard T. & Geoffrey Booth, G. & Tse, Yiuman & Zabotina, Tatyana, 2002. "Price discovery and common factor models," Journal of Financial Markets, Elsevier, vol. 5(3), pages 309-321, July.
- Cheol S. Eun & Sanjiv Sabherwal, 2003. "Cross-Border Listings and Price Discovery: Evidence from U.S.-Listed Canadian Stocks," Journal of Finance, American Finance Association, vol. 58(2), pages 549-576, 04.
When requesting a correction, please mention this item's handle: RePEc:zbw:cfswop:200850. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.