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 vector error correction models 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 modeling 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.

Publication Type:	Article
Additional Information:	This is a pre-copyedited, author-produced version of an article accepted for publication in Journal of Financial Econometrics following peer review. The version of record Giuseppe Buccheri, Giacomo Bormetti, Fulvio Corsi, Fabrizio Lillo, Comment on: Price Discovery in High Resolution, Journal of Financial Econometrics, is available online at: https://doi.org/10.1093/jjfinec/nbz008
Publisher Keywords:	High-resolution, High-frequency trading, Information share, HAR, Lagged-adjustment
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HG Finance
Departments:	School of Policy & Global Affairs > Economics

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