| Abstract: | We develop a microstructure model that, in contrast to previousmodels, allows one to estimate the frequency and quality ofprivate information. In addition, the model produces stationaryasset price and trading volume series. We find evidence thatinformation arrives frequently within a day and that this informationis of high quality. The frequent arrival of information, whilein contrast to previous microstructure model estimates, accordswith nonmodel-based estimates and the related literature testingthe mixture-of-distributions hypothesis. To determine if theestimates are correctly reflecting the arrival of latent information,we estimate the parameters over half-hour intervals within theday. Comparison of the parameter estimates with measures ofpersistent price changes reveals that the estimates reflectthe arrival of latent information. |
