SEMINARIO CEA-MIPP
Miércoles 24/04/2019

Depto. de Ingeniería Industrial – Sala de Consejo – Beauchef 851, piso 4, sala 401

“Price discovery and market microstructure noise», a cargo de Marcelo Fernandes, Fundação Getulio Vargas.

Abstract:

Using a continuous-time price discovery model, we show that the standard econometric framework typically yields inconsistent estimates of the price discovery measures in the presence of market microstructure noise due the usual errors-in-variable problem. We address this issue using instrumental variables. We devise two sets of valid instruments for alternative assumptions on the market microstructure noise, and then establish consistency and asymptotic normality of the corresponding price discovery measures. We illustrate our findings by investigating price discovery for Alcoa, showing that market leadership conclusions depend heavily on whether we account or not for market microstructure noise.

(with Gustavo Dias and Cristina Scherrer)

https://sites.google.com/site/mfernand72/home

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