Price Discovery in a Continuous-Time Setting*

Price Discovery and Common Factor Models

Gustavo F. Dias, Marcelo Fernandes and Cristina M. Scherrer

Journal of Financial Econometrics, 2021, vol. 19, issue 5, 985-1008

Abstract: We formulate a continuous-time price discovery model and investigate how the standard price discovery measures vary with respect to the sampling interval. We find that the component share (CS) measure is invariant to the sampling interval, and hence, discrete-sampled prices suffice to identify the continuous-time CS. In contrast, information share (IS) estimates are not comparable across different sampling intervals because the contemporaneous correlation between markets increases in magnitude as the sampling interval grows. We show how to back out the continuous-time IS from discrete-sampled prices under certain assumptions on the contemporaneous correlation. We assess our continuous-time model by comparing the estimates of the (continuous-time) CS and IS at different sampling intervals for 30 stocks in the United States. We find that both price discovery measures are typically stable across the different sampling intervals, suggesting that our continuous-time price discovery model fits the data very well.

Keywords: continuous-time model; high-frequency data; price discovery; sampling interval (search for similar items in EconPapers)
JEL-codes: C13 C32 C51 G14 (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://hdl.handle.net/10.1093/jjfinec/nbz030 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:jfinec:v:19:y:2021:i:5:p:985-1008.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

Journal of Financial Econometrics is currently edited by Allan Timmermann and Fabio Trojani

More articles in Journal of Financial Econometrics from Oxford University Press Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().