Tell-Tale Tails : A New Approach to Estimating Unique Information Shares

The trading of securities on multiple markets raises the question of each market's share in the discovery of the informationally efficient price. We exploit salient distributional features of multivariate financial price processes to uniquely determine these contributions. In doing so, we resolve the main drawback of the widely used Hasbrouck (1995) methodology, which merely provides upper and lower bounds of a market's information share. When these bounds diverge, as is the case in many applications, informational leadership becomes blurred. We show how tail dependence of price changes, which may emerge as a result of differences in market design, can be exploited to estimate unique information shares. Two empirical applications illustrate the benefit and practical use of the new methodology