Comment on: Price Discovery in High Resolution. (15th March 2019)

• Record Type: Journal Article
• Authors: Buccheri, Giuseppe; Bormetti, Giacomo; Corsi, Fulvio; Lillo, Fabrizio
• Is Part Of: Journal of financial econometrics. Volume 19:Number 3(2021)
• Page Start: 439
• Page End: 451
• Publication Date: 2019-03-15
• Subjects: high-resolution -- high-frequency trading -- information share -- HAR -- lagged-adjustment; C32 -- C58 -- G14; Capital market -- Law and legislation -- Periodicals; Financial institutions -- Law and legislation -- Periodicals; 338.544205
• DOI: 10.1093/jjfinec/nbz008
• Languages: English
• ISSNs: 1479-8409

Abstract

Abstract: This note is commenting on Hasbrouck (2018). The paper investigates the problem of price discovery on markets with trades recorded at sub-millisecond frequencies. The application of the popular information share measure of Hasbrouck (1995) to such data faces several difficulties, as the underlying vector error correction models would need a huge number of lags to capture dynamics at different time-scales. The problem is handled by imposing a set of restrictions on parameters inspired by the Heterogeneous Autoregressive model for realized volatility. We illustrate some potential drawbacks of the information share measure adopted in the paper and propose a modeling strategy aimed at dealing with such limitations. In particular, we introduce a structural multi-market model with a lagged adjustment mechanism describing lagged absorption of information across markets. The advantages of the method are shown in simulations.