A non-Normal framework for price discovery: The independent component based information shares measure

Sebastiano Michele Zema and Francesco Cordoni

LEM Papers Series from Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy

Abstract: We propose a new measure of price discovery, which we will refer to as the Independent Component based Information Share (IC-IS). This measure constitutes a variant of the widespread Information Share, with the main difference being it does not suffer the same identification issues. Under the assumptions of non-normality of the shocks, a rather general theoretical framework leading to the definition of the IC-IS and its estimation via a pseudo maximum likelihood (PML) approach is illustrated. After testing the robustness of the measure in a Montecarlo simulation environment, we illustrate two separate empirical analyses encompassing different price discovery applications.

Keywords: vector error correction models (VECMs); information shares; market microstructure; independent component analysis; pseudo maximum likelihood; price discovery (search for similar items in EconPapers)
Date: 2023-01-09
New Economics Papers: this item is included in nep-ecm
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Persistent link: https://EconPapers.repec.org/RePEc:ssa:lemwps:2023/03

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