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Price Discovery Processes

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  • JEROME L. STEIN

Abstract

This paper analyzes two price discovery processes: OLS learning from public information and a Bayesian learning made feasible by futures markets. The former tends to produce cobweb behaviour. In the latter, there is no cobweb, there is a faster convergence to Muth Rational Expectations, and the forecast errors are positively serially correlated The evidence drawn from the Sydney Futures Exchange is consistent with the Bayesian learning process.

Suggested Citation

  • Jerome L. Stein, 1992. "Price Discovery Processes," The Economic Record, The Economic Society of Australia, vol. 68(S1), pages 34-45, December.
    • Handle: RePEc:bla:ecorec:v:68:y:1992:i:s1:p:34-45
    DOI: 10.1111/j.1475-4932.1992.tb02294.x
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    References listed on IDEAS

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    1. Friedman, Daniel & Harrison, Glenn W & Salmon, Jon W, 1984. "The Informational Efficiency of Experimental Asset Markets," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 349-408, June.
    2. Chow, Gregory C, 1989. "Rational versus Adaptive Expectations in Present Value Models," The Review of Economics and Statistics, MIT Press, vol. 71(3), pages 376-384, August.
    3. Bray, Margaret M & Savin, Nathan E, 1986. "Rational Expectations Equilibria, Learning, and Model Specification," Econometrica, Econometric Society, vol. 54(5), pages 1129-1160, September.
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    Cited by:

    1. Chichilnisky, Graciela, 1996. "Markets with endogenous uncertainty: theory and policy," MPRA Paper 8612, University Library of Munich, Germany.

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