Developing Price Discovery Measures Within a Volatility-Based Model (Second Draft)

Abstract:     
Using a volatility-based model, our study extends the Hasbrouck (1995) information share methodology in three ways: uniquely determining the information share, proposing a time dependent information share, and adjusting the information share to volatility spillover among idiosyncratic shocks. When applying the model to Chinese stock index and index futures markets, we are able to discover the dual role played by liquidity and uncover the complex pattern of price discovery process. We also find that the market information shares experienced turbulent changes at the beginning of the infancy stage of the futures market.

Number of Pages in PDF File: 30

Keywords: price discovery, unique information share, time dependent information share, volatility spillover adjusted information share

JEL Classification: C32, C51, G13, G14

working papers series