Comment on: Price Discovery in High Resolution

13 Pages Posted: 6 Mar 2019 Last revised: 12 Mar 2019

See all articles by Giuseppe Buccheri

Giuseppe Buccheri

Scuola Normale Superiore

Giacomo Bormetti

University of Bologna - Department of Mathematics

Fulvio Corsi

University of Pisa - Department of Economics; City University London

Fabrizio Lillo

Università di Bologna

Date Written: February 15, 2019

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 VECM 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 modelling 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.

Keywords: High-resolution, High-frequency trading, Information share, HAR, Lagged-adjustment

JEL Classification: C32, D58, G14

Suggested Citation

Buccheri, Giuseppe and Bormetti, Giacomo and Corsi, Fulvio and Lillo, Fabrizio, Comment on: Price Discovery in High Resolution (February 15, 2019). Available at SSRN: https://ssrn.com/abstract=3334860 or http://dx.doi.org/10.2139/ssrn.3334860

Giuseppe Buccheri (Contact Author)

Scuola Normale Superiore ( email )

Piazza dei Cavalieri, 7
Pisa, 56126
Italy
+39 3341046378 (Phone)

Giacomo Bormetti

University of Bologna - Department of Mathematics ( email )

Piazza di Porta S. Donato , 5
Bologna, Bologna 40126
Italy

Fulvio Corsi

University of Pisa - Department of Economics ( email )

via Ridolfi 10
I-56100 Pisa, PI 56100
Italy

HOME PAGE: http://people.unipi.it/fulvio_corsi/

City University London ( email )

Northampton Square
London, EC1V OHB
United Kingdom

Fabrizio Lillo

Università di Bologna ( email )

Via Zamboni, 33
Bologna, 40126
Italy

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