Journal ArticleDOI
Cointegration, Error Correction, and Price Discovery on Informationally Linked Security Markets
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In this article, the authors estimate an error correction model to investigate whether each of the exchanges is contributing to price discovery, which yields two cointegrating vectors, which together verify the expected long-run equilibrium of equal prices across the three exchanges.Abstract:
Using synchronous transactions data for IBM from the New York, Pacific, and Midwest Stock Exchanges, we estimate an error correction model to investigate whether each of the exchanges is contributing to price discovery. Johansen's test yields two cointegrating vectors, which together verify the expected long-run equilibrium of equal prices across the three exchanges. Two error correction terms specified as the differences from IBM prices on the NYSE indicate that adjustments maintaining the long-run cointegration equilibrium take place on all three exchanges. That is, IBM prices on the NYSE adjust toward IBM prices on the Midwest and Pacific Exchanges, just as Midwest and Pacific prices adjust to the NYSE.read more
Citations
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Journal ArticleDOI
One Security, Many Markets: Determining the Contributions to Price Discovery
TL;DR: In this paper, an econometric approach based on an implicit unobservable efficient price common to all markets was proposed to determine where price discovery occurs in the U.S. equity markets.
Journal ArticleDOI
Realized Variance and Market Microstructure Noise
TL;DR: In this paper, the authors study market microstructure noise in high-frequency data and analyze its implications for the realized variance (RV) under a general specification for the noise.
Journal ArticleDOI
Realized Variance and Market Microstructure Noise
TL;DR: In this paper, the authors study market microstructure noise in high-frequency data and analyze its implications for the realized variance (RV) under a general specification for the noise.
Journal ArticleDOI
The World of Cross-Listings and Cross-Listings of the World: Challenging Conventional Wisdom
TL;DR: In this paper, the authors present a survey, synthesize and critically review the most recent literature on international cross-listings and propose a number of new research initiatives to understand better the motivation for overseas listings.
Journal ArticleDOI
Price discovery and common factor models
TL;DR: In this paper, the authors examined the relationship between the Hasbrouck (J. Bus. Econ. Stat. 13 (1995) 27) and Gonzalo and Granger (G. Granger) common factor models and provided different views of the price discovery process between markets.
References
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Journal ArticleDOI
Co-integration and Error Correction: Representation, Estimation and Testing
TL;DR: The relationship between co-integration and error correction models, first suggested in Granger (1981), is here extended and used to develop estimation procedures, tests, and empirical examples.
Journal ArticleDOI
Distribution of the Estimators for Autoregressive Time Series with a Unit Root
David A. Dickey,Wayne A. Fuller +1 more
TL;DR: In this article, the limit distributions of the estimator of p and of the regression t test are derived under the assumption that p = ± 1, where p is a fixed constant and t is a sequence of independent normal random variables.
Journal ArticleDOI
Statistical analysis of cointegration vectors
TL;DR: In this paper, the authors consider a nonstationary vector autoregressive process which is integrated of order 1, and generated by i.i.d. Gaussian errors, and derive the maximum likelihood estimator of the space of cointegration vectors and the likelihood ratio test of the hypothesis that it has a given number of dimensions.
Journal ArticleDOI
Likelihood ratio statistics for autoregressive time series with a unit root
David A. Dickey,Wayne A. Fuller +1 more
Journal ArticleDOI
Maximum likelihood estimation and inference on cointegration — with applications to the demand for money
Søren Johansen,Katarina Juselius +1 more
TL;DR: In this paper, the estimation and testing of long-run relations in economic modeling are addressed, starting with a vector autoregressive (VAR) model, the hypothesis of cointegration is formulated as a hypothesis of reduced rank of the long run impact matrix.