| Article ID | Journal | Published Year | Pages | File Type |
|---|---|---|---|---|
| 5069746 | Finance Research Letters | 2011 | 8 Pages |
We analyze the statistical properties of three price discovery measures: The variance ratio, the weighted price contribution (WPC), and the R2 of unbiasedness regressions. We find that, if the price process is a driftless martingale, only the WPC is an unbiased estimator for the return variance explained during a time interval. For autocorrelated processes with a drift, only the R2 of the unbiasedness regression is consistent, but it is biased for small samples.
⺠We analyze the statistical properties of three price discovery measures used in market microstructure research. ⺠If the price process is a driftless martingale, the variance ratio and the R2 of unbiasedness regressions are biased. ⺠Only the WPC is an unbiased estimator for driftless martingales. ⺠For autocorrelated processes with drifts, only the R2 is consistent, but biased for small samples.
