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The Financial Econometrics of Price Discovery and Predictability

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  • Seema Narayan
  • Russell Smyth

Abstract

This paper reviews recent econometric developments in the literature on price discovery and price predictability. For both areas, we discuss traditional approaches to econometric modeling, limitations to these approaches, and recent developments designed to overcome them. We also discuss the state-of-the-art and suggest future research. Three main conclusions are drawn. First, while many recent empirical applications in price discovery and price predictability are on the frontier of econometric methods, further developments are needed to increase relaxation of relevant assumptions and push the boundaries of applications. Second, future research in econometric modelling needs to combine/synthesize recent developments across multiple econometric issues rather than proceeding in a piecemeal manner, for instance, by integrating developments in the time series literature into panel-based frameworks. Third, recent econometric literature is generating findings that challenge long-held beliefs about apparent empirical regularities in price discovery and price predictability, thus presenting opportunities to develop relevant theory.

Suggested Citation

  • Seema Narayan & Russell Smyth, 2015. "The Financial Econometrics of Price Discovery and Predictability," Monash Economics Working Papers 06-15, Monash University, Department of Economics.
  • Handle: RePEc:mos:moswps:2015-06
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    Cited by:

    1. Mehdi Arzandeh & Julieta Frank, 2019. "Price Discovery in Agricultural Futures Markets: Should We Look beyond the Best Bid-Ask Spread?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 101(5), pages 1482-1498.
    2. Stefano Bertelli & Gianmarco Vacca & Maria Grazia Zoia, 2022. "Bootstrap Cointegration Tests in ARDL Models," Papers 2204.04939, arXiv.org.
    3. Osama Ahmed, 2021. "Assessing the Current Situation of the World Wheat Market Leadership: Using the Semi-Parametric Approach," Mathematics, MDPI, vol. 9(2), pages 1-21, January.
    4. Riccardo De Blasis, 2020. "The price leadership share: a new measure of price discovery in financial markets," Annals of Finance, Springer, vol. 16(3), pages 381-405, September.
    5. Arzandeh, Mehdi & Frank, Julieta, 2017. "The Information Content of the Limit Order Book," 7th Annual Canadian Agri-Food Policy Conference, January 11-13, 2017, Ottawa, ON 253251, Canadian Agricultural Economics Society.
    6. Edson Kambeu, 2017. "The role of Exchange Traded Funds in the price discovery process of stocks listed on the Botswana Stock Exchange," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 6(1), pages 141-148, January.
    7. Sarveshwar Kumar Inani, 2017. "Price discovery in Indian stock index futures market: new evidence based on intraday data," International Journal of Indian Culture and Business Management, Inderscience Enterprises Ltd, vol. 14(1), pages 23-43.
    8. Ahmed, Osama, 2021. "Assessing the current situation of the world wheat market leadership: Using the semi-parametric approach," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics.
    9. Mehdi Arzandeh & Julieta Frank, 2019. "Price Discovery in Agricultural Futures Markets: Should We Look beyond the Best Bid‐Ask Spread?," American Journal of Agricultural Economics, John Wiley & Sons, vol. 101(5), pages 1482-1498, October.
    10. Edward Curran & Jack Hunt & Vito Mollica, 2020. "Trading protocols and price discovery: Implicit transaction costs in Indian single stock futures," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(11), pages 1793-1806, November.

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    More about this item

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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