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 bo
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.
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Metadaten
Author:Joachim G. Grammig, Franziska J. Peter
URN:urn:nbn:de:hebis:30-62291
Parent Title (German):CFS working paper series ; 2008, 50
Series (Serial Number):CFS working paper series (2008, 50)
Document Type:Working Paper
Language:English
Date of Publication (online):2009/01/29
Year of first Publication:2008
Publishing Institution:Univ.-Bibliothek Frankfurt am Main
Release Date:2009/01/29
Tag:International Cross-Listings ; Market Microstructure Noise ; Price Discovery
HeBIS PPN:210303808
Institutes:Center for Financial Studies (CFS)
Dewey Decimal Classification:330 Wirtschaft
JEL-Classification:F3 International Finance
G15 International Financial Markets
Sammlungen:Universitätspublikationen
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

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