Tell-Tale Tails: A New Approach to Estimating Unique Information Shares

Posted: 5 Aug 2008 Last revised: 18 Mar 2014

See all articles by Joachim Grammig

Joachim Grammig

University of Tübingen

Franziska J. Peter

Eberhard Karls Universität Tübingen

Date Written: November 8, 2011

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. In doing so, we resolve the main drawback of the widely used Hasbrouck (1995) methodology, which merely provides upper and lower bounds of a market’s information share. When these bounds diverge, as is the case in many applications, informational leadership becomes blurred. 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 empirical applications illustrate the benefit and practical use of the new methodology.

Keywords: price discovery, information shares, tail dependence

JEL Classification: G10, G14, C32

Suggested Citation

Grammig, Joachim and Peter, Franziska Julia, Tell-Tale Tails: A New Approach to Estimating Unique Information Shares (November 8, 2011). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming, Available at SSRN: https://ssrn.com/abstract=1195402

Joachim Grammig (Contact Author)

University of Tübingen ( email )

Mohlstrasse 36
72074 Tübingen, Baden Wuerttemberg 72074
Germany

Franziska Julia Peter

Eberhard Karls Universität Tübingen ( email )

Mohlstrasse 36
72074 Tuebingen, Baden Wuerttemberg 72074
Germany

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