Measuring price discovery: The variance ratio, the R2, and the weighted price contribution

Jos van Bommel (jos.vanbommel@uni.lu)

Finance Research Letters, 2011, vol. 8, issue 3, 112-119

Abstract: We analyze the statistical properties of three price discovery measures: The variance ratio, the weighted price contribution (WPC), and the R2 of unbiasedness regressions. We find that, if the price process is a driftless martingale, only the WPC is an unbiased estimator for the return variance explained during a time interval. For autocorrelated processes with a drift, only the R2 of the unbiasedness regression is consistent, but it is biased for small samples.

Keywords: Market; microstructure; Price; discovery; Weighted; price; contribution (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:8:y:2011:i:3:p:112-119

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