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A Direct Test of the Mixture of Distributions Hypothesis: Measuring the Daily Flow of Information

Published online by Cambridge University Press:  06 April 2009

Matthew Richardson  and
Tom Smith
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Abstract

This paper proposes and conducts direct tests of the mixture of distributions model for stock prices. By exploiting the model's bivariate conditional normality of price changes and trading volume, these restrictions can be tested under very weak assumptions regarding the daily flow of information to the market. As a technical byproduct, important parameters governing the distribution of this unobservable information flow are estimated.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 29 , Issue 1 , March 1994 , pp. 101 - 116
Copyright
Copyright © School of Business Administration, University of Washington 1994

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