Inferring Public and Private Information from Trades and Quotes

23 Pages Posted: 20 Nov 2006

See all articles by Bart Frijns

Bart Frijns

Auckland University of Technology - Faculty of Business & Law

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Abstract

We propose a new model that uses nonsynchronous, ultra-high frequency data to analyze the sequential impact of trades and quotes on the price process. Private information is related to the impact of trades and public information to the impact of quotes. The model is extended to include various other factors that affect public and private information. For 20 active Nasdaq stocks, private information causes, on average, 9.43% of daily stock price movements. Additionally, quotes are more informative when (1) many dealers set the best price and (2) traditional market makers rather than Electronic Communication Networks set the best price.

Suggested Citation

Frijns, Bart, Inferring Public and Private Information from Trades and Quotes. The Financial Review, Vol. 41, No. 1, pp. 95-117, February 2006. Available at SSRN: https://ssrn.com/abstract=945502 or http://dx.doi.org/10.1111/j.1540-6288.2006.00134.x

Bart Frijns (Contact Author)

Auckland University of Technology - Faculty of Business & Law ( email )

3 Wakefield Street
Private Bag 92006
Auckland Central 1020
New Zealand

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