Price discovery in tick time

B Frijns; P Schotman

doi:10.1016/j.jempfin.2009.07.002

Price discovery in tick time

B Frijns, P Schotman

Research output: Contribution to journal › Article › Academic › peer-review

Abstract

This paper develops a tick time model for the quote setting dynamics on Nasdaq. The model decomposes quotes into an efficient price, asymmetric information and noise. Both the evolution of the efficient price and the information contents of quotes depend on quote durations. New measures for the contribution to price discovery are defined within this model. When aggregated to fixed calendar time intervals, they relate closely to Hasbrouck [Hasbrouck, Joel, 1995, One security, many markets: determining the contribution to price discovery, Journal of Finance 50, 1175–1199] information shares. Empirical results for 20 Nasdaq stocks indicate that ECNs, in particular Island, contribute most to price discovery for active stocks. For less active stocks, wholesale market makers contribute most.

Original language	English
Pages (from-to)	759-776
Number of pages	18
Journal	Journal of Empirical Finance
Volume	16
Issue number	5
DOIs	https://doi.org/10.1016/j.jempfin.2009.07.002
Publication status	Published - Dec 2009
Externally published	Yes

Keywords

Microstructure
Nasdaq
Price discovery
Tick time models
Ultra-high frequency data

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10.1016/j.jempfin.2009.07.002

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title = "Price discovery in tick time",

abstract = "This paper develops a tick time model for the quote setting dynamics on Nasdaq. The model decomposes quotes into an efficient price, asymmetric information and noise. Both the evolution of the efficient price and the information contents of quotes depend on quote durations. New measures for the contribution to price discovery are defined within this model. When aggregated to fixed calendar time intervals, they relate closely to Hasbrouck [Hasbrouck, Joel, 1995, One security, many markets: determining the contribution to price discovery, Journal of Finance 50, 1175–1199] information shares. Empirical results for 20 Nasdaq stocks indicate that ECNs, in particular Island, contribute most to price discovery for active stocks. For less active stocks, wholesale market makers contribute most.",

keywords = "Microstructure, Nasdaq, Price discovery, Tick time models, Ultra-high frequency data",

author = "B Frijns and P Schotman",

year = "2009",

month = dec,

doi = "10.1016/j.jempfin.2009.07.002",

language = "English",

volume = "16",

pages = "759--776",

journal = "Journal of Empirical Finance",

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TY - JOUR

T1 - Price discovery in tick time

AU - Frijns, B

AU - Schotman, P

PY - 2009/12

Y1 - 2009/12

N2 - This paper develops a tick time model for the quote setting dynamics on Nasdaq. The model decomposes quotes into an efficient price, asymmetric information and noise. Both the evolution of the efficient price and the information contents of quotes depend on quote durations. New measures for the contribution to price discovery are defined within this model. When aggregated to fixed calendar time intervals, they relate closely to Hasbrouck [Hasbrouck, Joel, 1995, One security, many markets: determining the contribution to price discovery, Journal of Finance 50, 1175–1199] information shares. Empirical results for 20 Nasdaq stocks indicate that ECNs, in particular Island, contribute most to price discovery for active stocks. For less active stocks, wholesale market makers contribute most.

AB - This paper develops a tick time model for the quote setting dynamics on Nasdaq. The model decomposes quotes into an efficient price, asymmetric information and noise. Both the evolution of the efficient price and the information contents of quotes depend on quote durations. New measures for the contribution to price discovery are defined within this model. When aggregated to fixed calendar time intervals, they relate closely to Hasbrouck [Hasbrouck, Joel, 1995, One security, many markets: determining the contribution to price discovery, Journal of Finance 50, 1175–1199] information shares. Empirical results for 20 Nasdaq stocks indicate that ECNs, in particular Island, contribute most to price discovery for active stocks. For less active stocks, wholesale market makers contribute most.

KW - Microstructure

KW - Nasdaq

KW - Price discovery

KW - Tick time models

KW - Ultra-high frequency data

U2 - 10.1016/j.jempfin.2009.07.002

DO - 10.1016/j.jempfin.2009.07.002

M3 - Article

SN - 0927-5398

VL - 16

SP - 759

EP - 776

JO - Journal of Empirical Finance

JF - Journal of Empirical Finance

IS - 5

ER -

Price discovery in tick time

Abstract

Keywords

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