The Relative Contemporaneous Information Response.
A New Cointegration-Based Measure of Price Discovery
Faculdade de Economia, Universidade de Coimbra / GEMF
This paper describes the cointegration-based technologies commonly used to assess the relative price discovery across markets, namely the Hasbrouck information shares and Gonzalo-Granger long memory common factor weights, and presents a new metric denominated contemporaneous information response. These metrics are compared via simulation experiments. It is shown that, under fairly regular market conditions, the contemporaneous information response is a reliable measure of the relative incorporation of information, and in most cases is more resilient to microstructural noise than the other two metrics.
JEL Classification: G13; G14; G15; G21.
Keywords: Price discovery; High frequency data; Information shares; Common factors; FTSE 100; Stock index futures; Market microstructure.