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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26935
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| Title: | Price Discovery in Tick Time |
| Authors: | Frijnsy, Bart
Schotmanz, Peter |
| Keywords: | Price Discovery
Tick Time models
Nasdaq
Ultra-high frequency data
Microstructure |
| Issue Date: | Feb-2005 |
| Series/Report no.: | SC-CFE-05-02 |
| Abstract: | In this paper we propose a tick time model for the quote setting process
on Nasdaq using a time series of all quote updates by the most active
dealers and ECNs (Electronic Communication Networks). The model includes
duration effects in the volatility of the efficient price and in the
covariance of quote updates with the efficient price. As a measure of
price discovery we define information shares in tick time. When
aggregated to calendar time they provide an alternative for the
Hasbrouck (1995) information shares. In the empirical analysis we
compare quotes from two ECNs (Island and Instinet), and three wholesale
market makers for 20 actively traded stocks with varying liquidity. We
find 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 are important for less liquid stocks. |
| URI: | http://hdl.handle.net/2451/26935 |
| Appears in Collections: | Financial Econometrics
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