Price Discovery in Tick Time

35 Pages Posted: 22 Jul 2004

See all articles by Bart Frijns

Bart Frijns

Open University of the Netherlands - School of Management

Peter C. Schotman

Maastricht University - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: March 9, 2004

Abstract

In this paper we propose a tick time model for dealer quote interactions using ultra-high-frequency data. This model includes duration functions to measure the time dependence of volatility as well as information asymmetry. In order to assess price discovery we define several measures in tick time. These measures can be aggregated to calendar time and we define a comparable measure to Hasbrouck (1995) information shares. In our empirical part we examine the Island and Instinet Electronic Communication Networks, and three wholesale market makers for 20 actively traded stocks with varying liquidity at Nasdaq. Our results include that volatility does not increase with the duration between quote updates, and that longer quote durations lead to lower price discovery. In terms of price discovery we find that ECNs tend to dominate the liquid stocks, whereas market makers dominate the less liquid stocks.

Keywords: Price Discovery, Tick Time models, Nasdaq, Ultra-high frequency data, Microstructure

JEL Classification: C32, G15

Suggested Citation

Frijns, Bart and Schotman, Peter C., Price Discovery in Tick Time (March 9, 2004). Available at SSRN: https://ssrn.com/abstract=567093 or http://dx.doi.org/10.2139/ssrn.567093

Bart Frijns (Contact Author)

Open University of the Netherlands - School of Management ( email )

Valkenburgerweg 177
Heerlen, NL-6401DL
Netherlands

Peter C. Schotman

Maastricht University - Department of Finance ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands
+31 43 388 3862 (Phone)
+31 43 388 4875 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
281
Abstract Views
1,777
rank
125,724
PlumX Metrics