June 21, 2000
Joel Hasbrouck
ABSTRACT
The principle that revisions to the expectation of a security's value should be unforecastable identifies this
expectation as a martingale. When price changes can plausibly be assumed covariance stationary, this in turn motivates
interest in the random walk. In the presence of the market frictions featured in many microstructure models, however,
this expectation does not invariably coincide with observed security prices such as trades and quotes. Accordingly,
the random walk becomes an implicit, unobserved component. This paper is an overview of econometric approaches
to characterizing this important component in single- and multiple-price applications.
Joel Hasbrouck
Institution: Stern School of Business, New York University
Email: jhasbrou@stern.nyu.edu
Telephone: (212) 998-0310
Homepage: http://www.stern.nyu.edu/~jhasbrou
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