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Telltale Tails: A New Approach to Estimating Unique Market Information Shares

Published online by Cambridge University Press:  03 May 2013

Joachim Grammig  and
Franziska J. Peter
Joachim Grammig
Affiliation:
joachim.grammig@uni-tuebingen.de, Department of Economics, University of Tübingen, Mohlstrasse 36, D-72074 Tübingen, Germany, and Centre for Financial Research
Franziska J. Peter
Affiliation:
franziska-julia.peter@uni-tuebingen.de, Department of Economics, University of Tübingen, Mohlstrasse 36, D-72074 Tübingen, Germany.
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Abstract

The trading of securities on multiple markets raises the question of each market’s share in the discovery of the informationally efficient price. We exploit salient distributional features of multivariate financial price processes to uniquely determine these contributions, thereby resolving the main drawback of the widely used Hasbrouck (1995) methodology, which merely provides upper and lower bounds of a market’s information share. We show how tail dependence of price changes, which may emerge as a result of differences in market design, can be exploited to estimate unique information shares. Two empiricalapplications illustrate the practical use of the new methodology.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 48 , Issue 2 , April 2013 , pp. 459 - 488
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2013 

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