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A non-Normal framework for price discovery: The independent component based information shares measure

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  • Sebastiano Michele Zema
  • Francesco Cordoni

Abstract

We propose a new measure of price discovery, which we will refer to as the Independent Component based Information Share (IC-IS). This measure constitutes a variant of the widespread Information Share, with the main difference being it does not suffer the same identification issues. Under the assumptions of non-normality of the shocks, a rather general theoretical framework leading to the definition of the IC-IS and its estimation via a pseudo maximum likelihood (PML) approach is illustrated. After testing the robustness of the measure in a Montecarlo simulation environment, we illustrate two separate empirical analyses encompassing different price discovery applications.

Suggested Citation

  • Sebastiano Michele Zema & Francesco Cordoni, 2023. "A non-Normal framework for price discovery: The independent component based information shares measure," LEM Papers Series 2023/03, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    • Handle: RePEc:ssa:lemwps:2023/03
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    References listed on IDEAS

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