Effects of regulatory changes on market integration: A cointegration analysis of information shares

Abstract

There is an extensive body of literature on the information share of markets particularly when a single asset or identical assets are traded in several markets. Most of these studies focus on the price discovery process and the information contribution of the individual markets. However the idea that the information share can be used as a measure of market integration (or fragmentation) has not been adequately explored. Regulatory and microstructure changes such as Fair Disclosure and Decimalization of tick-size have an effect on the information dissemination and price discovery. More efficient price discovery and greater information parity are some of the justifications offered for the introduction of such measures. This article measures the effects of such changes on the information share, the duration of impulse response functions, and tests whether such regulations have achieved greater informational parity and market integration.