Abstract
In this paper we combine the heterogeneous agent literature with the market microstructure literature in order to introduce time varying measures of price discovery based on underlying profit maximizing behavior. We set up a heterogeneous agent model with arbitrageurs and chartists, and allow agents to switch between the strategies conditional on recent performance. Estimation of the model on Canadian-US cross-listed stocks shows that there is significant heterogeneity and switching, causing ample variation in the information processing capacity of markets.
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