Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/41385
Authors: 
Grammig, Joachim G.
Peter, Franziska J.
Year of Publication: 
2010
Series/Report no.: 
CFR working paper 10-06
Abstract: 
The trading of securities on multiple markets raises the question of each market's share in the discovery of the informationally efficient price. We exploit salient distributional features of multivariate financial price processes to uniquely determine these contributions. Thereby we resolve the main drawback of the widely used Hasbrouck (1995) methodology which merely delivers upper and lower bounds of a market's information share. When these bounds diverge, as is the case in many applications, informational leadership becomes blurred. We show how fat tails and tail dependence of price changes, which emerge as a result of differences in market design and liquidity, can be exploited to estimate unique information shares. The empirical application of the new methodology emphasizes the leading role of the credit derivatives market compared to the corporate bond market in pricing credit risk during the pre-crisis period.
Subjects: 
price discovery
information share
fat tails
tail dependence
liquidity
credit risk
JEL: 
G10
G14
C32
Document Type: 
Working Paper

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