This note is commenting on Hasbrouck (2018). The paper investigates the problem of price discovery on markets with trades recorded at sub-millisecond frequencies. The application of the popular information share measure of Hasbrouck (1995) to such data faces several difficulties, as the underlying vector error correction models would need a huge number of lags to capture dynamics at different time-scales. The problem is handled by imposing a set of restrictions on parameters inspired by the Heterogeneous Autoregressive model for realized volatility. We illustrate some potential drawbacks of the information share measure adopted in the paper and propose a modeling strategy aimed at dealing with such limitations. In particular, we introduce a structural multi-market model with a lagged adjustment mechanism describing lagged absorption of information across markets. The advantages of the method are shown in simulations.

Comment on: Price Discovery in High Resolution

Bormetti, Giacomo;Corsi, Fulvio;Lillo, Fabrizio
2021-01-01

Abstract

This note is commenting on Hasbrouck (2018). The paper investigates the problem of price discovery on markets with trades recorded at sub-millisecond frequencies. The application of the popular information share measure of Hasbrouck (1995) to such data faces several difficulties, as the underlying vector error correction models would need a huge number of lags to capture dynamics at different time-scales. The problem is handled by imposing a set of restrictions on parameters inspired by the Heterogeneous Autoregressive model for realized volatility. We illustrate some potential drawbacks of the information share measure adopted in the paper and propose a modeling strategy aimed at dealing with such limitations. In particular, we introduce a structural multi-market model with a lagged adjustment mechanism describing lagged absorption of information across markets. The advantages of the method are shown in simulations.
2021
Buccheri, Giuseppe; Bormetti, Giacomo; Corsi, Fulvio; Lillo, Fabrizio
File in questo prodotto:
File Dimensione Formato  
Comments on Price Discovery 2019.pdf

accesso aperto

Tipologia: Documento in Post-print
Licenza: Tutti i diritti riservati (All rights reserved)
Dimensione 348.16 kB
Formato Adobe PDF
348.16 kB Adobe PDF Visualizza/Apri

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11568/998290
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 6
  • ???jsp.display-item.citation.isi??? 6
social impact