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Price discovery in a continuous-time setting

Gustavo Fruet Dias (), Marcelo Fernandes and Cristina M. Scherrer ()
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Gustavo Fruet Dias: Aarhus University and CREATES, Postal: Department of Economics and Business Economics, Fuglesangs Allé 4, 8210 Aarhus V, Denmark
Cristina M. Scherrer: Aarhus University and CREATES, Postal: Department of Economics and Business Economics, Fuglesangs Allé 4, 8210 Aarhus V, Denmark

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: We formulate a continuous-time price discovery model and investigate how the standard price discovery measures vary with respect to the sampling frequency. We find that the component share measure is invariant to the sampling frequency, and hence a continuous-time price discovery measure can be identified from discrete sampled prices. Our second contribution consists on proposing an estimation strategy for the continuous-time measure of price discovery, which evolves stochastically on a daily basis. We adopt a kernel-based estimator that compares favourable to the standard daily VECM regression. We compute daily estimates of price discovery and investigate their relationship with trading volume for 10 actively traded stocks in the U.S. from 2007 to 2013.

Keywords: high-frequency data; price discovery; continuous-time model; sampling frequency; time-varying coefficients (search for similar items in EconPapers)
JEL-codes: C13 C32 C51 G14 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-sog
Date: 2016-09-01
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