Price Discovery Share: An Order Invariant Measure of Price Discovery

To address the order-dependence of Hasbrouck’s (1995) information share (IS) measure
of a market’s contribution to price discovery, we propose a closely related measure,
which we call price discovery share (PDS), that is simple to compute, easy to interpret,
order invariant, and unique. Our PDS measure is motivated by a widely used
method in portfolio risk management to additively decompose portfolio volatility into
asset specific contributions. We show analytically and through simulations that PDS
provides advantages over IS and the modified IS by Lien and Shrestha (2009).