Abstract
I propose a model to uniquely and dynamically estimate a market’s information share. My model can also recover short run information flow’s effect on information share. After accounting for that effect, I propose a method to estimate the portion of information to which a market first reacts. The market that reacts quickly may not interpret well, as found in the subsequent study on Chinese stock index and index futures markets. The outcome suggests a dual role of liquidity. While high liquidity makes the futures market react faster to most of the information (62.5%), it also makes the futures prices noisier, and lower its contribution to information interpretation (34.4%).
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