DP3987 Price Discovery in Fragmented Markets

Author(s): Frank de Jong, Peter C Schotman
Publication Date: July 2003
Keyword(s): high-frequency data, microstructure, structural time series models
JEL(s): C32, F31
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3987

This Paper proposes a structural time series model for the intra-day price dynamics of fragmented financial markets. We generalize the structural model of Hasbrouck (1993) to a multivariate setting. We discuss identification issues and propose a new measure for the contribution of each market to price discovery. We illustrate the model by an empirical example using Nasdaq dealer quotes.