Time based analysis of the Hasbrouck measure of price discovery

In this paper the matter of price discovery (i.e. the incorporation of new information in the security price) in fragmented markets is addressed. I refer to fragmented markets when the same security is traded in dierent markets. This paper investigates which market is leading in the process of price discovery over a major time frame, where the trading volume is increasing strongly, and for comparison I analyse simularly for a relative short time frame, where the trading volume is signicant lower than rst mentioned investigation. Especially, I try to determine whether the increasing market ecienty is re ected in the price discovery. The paper describe the model from Hasbrouck (1995) and the corresponding measure for information shares of the multiple markets. As a new application, I consider the midquotes across the nine markets of IBM from 2002 till 2007 and for comparison I also consider the midquotes across the seven market of Expedia in July 2007. The paper concludes that for both stocks the market leader can be determinated, seasonality and start-up problems do not seem relevant for price discovery.