Telltale Tails: A New Approach to Estimating Unique Market Information Shares

Grammig, Joachim; Peter, Franziska J.

doi:10.1017/s0022109013000215

Cited by 55 publications

(60 citation statements)

References 44 publications

(73 reference statements)

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“…Permuting the ordering yields lower and upper bounds for each market. As outlined by Grammig and Peter (2013) information share upper and lower bounds can be large depending on the amount of contemporaneous correlation between the composite innovations u t (compare Booth et al (2002) and Hupperets and Menkveld (2002)). As a result conclusions regarding the leading market are vage.…”

Section: A Markov Switching Approach To Estimate Unique Information Smentioning

confidence: 99%

“…As a result conclusions regarding the leading market are vage. Grammig and Peter (2013) resolve this problem by assuming a mixture normal distribution for the composite innovations. This assumption is supported by the commonly found fat tails in financial returns (see Longin and Solnik (2001); Rigobon (2003); Lanne and Lütkepohl (2010)) and enables the identification of contemporaneous effects and unique information shares.…”

Section: A Markov Switching Approach To Estimate Unique Information Smentioning

confidence: 99%

“…This assumption is supported by the commonly found fat tails in financial returns (see Longin and Solnik (2001); Rigobon (2003); Lanne and Lütkepohl (2010)) and enables the identification of contemporaneous effects and unique information shares. In the context of Grammig and Peter (2013) the distributional assumption imply two regimes that are associated with different variances. The regimes are assumed to be independent (iid ).…”

Section: A Markov Switching Approach To Estimate Unique Information Smentioning

confidence: 99%

“…Both studies report changes in the dynamics of CDS prices depending on high and low volatility regimes.However, previous price discovery studies have neglected this characteristic. Blanco et al (2005), Dimpfl and Peter (2013) and Grammig and Peter (2013) examine the contribution of the CDS and corporate bond market to the price discovery process. All of them determine the CDS market as the leading one.…”

Section: Introductionmentioning

confidence: 99%

“…Blanco et al (2005) apply the common measure of Hasbrouck (1995) information shares to quantify a market's contribution. The Hasbrouck information share measure was modified by Grammig and Peter (2013), in order to resolve the problem of underterminancy inherent in the Hasbrouck approach and deliver a unique information share. Our approach extends their methodology by using a Markov switching framework that models CDS prices and bond spreads dependent on two different variance regimes.…”

Section: Introductionmentioning

confidence: 99%

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Price discovery in the markets for credit risk: a Markov switching approach

Dimpfl

Peter

2016

Studies in Nonlinear Dynamics &Amp; Econometrics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu Terms of use: Documents in AbstractWe examine price discovery in the Credit Default Swap and corporate bond market. By using a Markov switching framework we are able to analyze the dynamic behavior of the information shares during tranquil and crisis periods. The results show that price discovery takes place mostly on the CDS market. The importance of the CDS market even increases during the more volatile crisis periods. According to a cross sectional analysis liquidity is the main determinant of a market's contribution to price discovery. During the crisis period, however, we also find a positive link between leverage and CDS market information shares. Overall the results indicate that price discovery measures and their determinants change during tranquil and crisis periods, which emphasizes the importance of more flexible frameworks, such as Markov switching models.

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Section: A Markov Switching Approach To Estimate Unique Information Smentioning

confidence: 99%

Section: A Markov Switching Approach To Estimate Unique Information Smentioning

confidence: 99%

Section: A Markov Switching Approach To Estimate Unique Information Smentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

Price discovery in the markets for credit risk: a Markov switching approach

Dimpfl

Peter

2016

Studies in Nonlinear Dynamics &Amp; Econometrics

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Estimation of Market Information Shares: A Comparison

Lien

Wang

2016

Journal of Futures Markets

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This note investigates via Monte Carlo simulation the finite‐sample performance of two identification schemes that provide unique measures of Hasbrouck‐type information share in price discovery. The Lien and Shrestha (2009) method is based on factorization of the full correlation matrix and the Grammig and Peter (2013) method is based on different correlations of price innovations in the tails and in the center of the distributions. We find that the GP method performs poorly under the chosen data generation processes. The LS method provides at most marginal improvement over the method based upon the upper/lower bound midpoint of the Hasbrouck measure. The results, therefore, support the common practice of the midpoint approach. © 2016 Wiley Periodicals, Inc. Jrl Fut Mark 36:1108–1124, 2016

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Price discovery in dual‐class shares across multiple markets

Fernandes¹,

Scherrer

2017

Journal of Futures Markets

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This paper proposes a new measure of price discovery that uses the spectral decomposition. The methodology is especially important in the context of large price systems, such as interest rate parities with spot and futures contracts or dual-class shares in multiple markets. We employ high frequency data to study price discovery in dual-class Brazilian stocks and their ADRs. We find that the foreign market is at least as informative as the home market and that shocks in the dual-class premium entail a permanent effect in normal times, but transitory in periods of financial distressFinancial markets have the important function of discovering the price of a given asset. The increasing availability of highfrequency data allows us to study how efficiently and timely each market reacts to news in a much more precise manner. There is a large number of companies being listed in more than one exchange mainly because cross-listing allows raising equity capital, at a lower cost and increasing liquidity. Besides, it may also improve minority shareholder protection (Stulz, 1999), increase firm value (Doidge, Karolyi, & Stulz, 2004), and lower private benefits of control (Doidge, 2004). There are 498 foreign companies from 46 different countries listed on NYSE as of June 30, 2016. As a result, geographical price discovery is of major interest for domestic stock exchanges and companies (see, for instance, Eun & Sabherwal, 2003). This paper extends the standard price discovery methodology to deal with high-dimension portfolios. Applications include interest rate parities using both spot and future contracts in interest rate and exchange rate markets as well as dual-class assets traded on multiple markets. We focus on the latter. The idea is to exploit every piece of information about the fundamental value of a firm by looking at the prices of both common and preferred shares across different trading platforms. As a by-product, by looking at the difference between prices of common and preferred shares, we may also shed some light on the behavior of the dual-class premium.The main technical difficulty is to contrive a unique price discovery measure that does not assume a priori which share class and/or market lead the impounding of new information. For the standard information share (IS) measure of price discovery (Hasbrouck, 1995), which gauges the fraction of the variance of the fundamental price innovation due to the variance of a given asset/market price innovation, one normally imposes a triangular structure from the most informative to the least informative market price in order to handle contemporaneous correlations. ISs will thus depend on the specific ordering in the price system.One solution is to consider the average IS across different orderings of market prices. This is a simple and effective solution if there are only a few market prices. However, as the number of assets/markets increase, one would have to average over thousands J Futures Markets. 2018;38:129-155.wileyonlinelibrary.com/journal/fut

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Telltale Tails: A New Approach to Estimating Unique Market Information Shares

Cited by 55 publications

References 44 publications

Price discovery in the markets for credit risk: a Markov switching approach

Price discovery in the markets for credit risk: a Markov switching approach

Estimation of Market Information Shares: A Comparison

Price discovery in dual‐class shares across multiple markets

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