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Price Discovery Process (price + discovery_process)
Selected AbstractsMeasuring Productive Efficiency of Stock Exchanges using Price Adjustment CoefficientsINTERNATIONAL REVIEW OF FINANCE, Issue 1-2 2003Vijaya B. Marisetty A stock exchange's efficiency can be measured by its liquidity and price discovery mechanism. An exchange that provides price discovery will have high liquidity. By measuring the speed of stock price adjustment to its intrinsic value with the arrival of new information, we can understand the price discovery process and productive efficiency of a stock exchange. India has 23 stock exchanges, 20 of which have almost become dysfunctional due to negligible trading during the last five years. Measuring productive efficiency of the current active stock exchanges will help to understand the future direction of the Indian stock market. Using the corrected Damodaran (1993) model and a new model proposed in this paper, I found that information adjustment in the Indian market is very slow. Contrary to the developed markets, in the Indian stock market, stock prices overreact before adjusting to their intrinsic values. I also found that market-wide information adjusts faster than firm-specific information. [source] Bookbuidling, Auctions, and the Future of the IPO ProcessJOURNAL OF APPLIED CORPORATE FINANCE, Issue 1 2005William J. Wilhelm Jr. Auction theorists predict that bookbuilding, long the standard process for selling equity IPOs in the U.S., is about to give way to an Internet-based IPO auction process that is both more efficient and more fair. The promise of auctions is that, by using an electronic platform that gives all investors the opportunity to bid on IPOs, the underpricing of IPOs and commissions to underwriters will be reduced, leading to an increase in net proceeds to issuers. Largely missing from such arguments, however, is an appreciation of why bookbuilding has dominated U.S. practice (and continues to supplant auctions in IPOs in most countries outside the U.S) and the role of undepricing in the IPO process. Rather than canvassing all investors, bookbuilding involves eliciting expressions of interest from institutional investors, and then allocating shares mainly according to the strength of their professed interest. In contrast to auctions, which allocate shares according to a set of explicit rules, bookbuilding involves a set of implicit "rules" that provide considerable room for judgment by the underwriter. This does not mean that the rules are arbitrary or not well understood by participants, particularly after thousands of IPOs conducted over the better part of two centuries. But to manage the exchange of information between issuers and investors, and the potential conflicts of interest in representing both groups, such rules must be administered by an intermediary with a considerable stake in protecting its reputation for fair dealing. Investment banks that deal with both issuers and the investment community on a regular basis are well positioned to perform this function. The underpricing of IPOs is best viewed not as a transfer of wealth from issuers to favored investors but rather as compensation to the large influential investors that play a major role in the price discovery process. By opening the process to all comers, auctions will discourage these large investors from bidding aggressively because less sophisticated investors will be able to "free ride" on their research and due diligence. To the extent this happens, auctions may suc ceed in reducing underpricing (in fact, they may even lead to over pricing), but they will also reduce the net proceeds for issuers. Nevertheless, recent advances in communications technology and auction theory will undoubtedly reshape current securities underwriting practices. In particular, Internet auctions are likely to replace bookbuilding in debt IPOs and less risky equity issues (say, IPOs of LBOs). But the argument that Bookbuilding will be completely cast aside in favor of largely untested alternatives fails to appreciate a successful institutional response to major market imperfections, some of which can never be wholly eliminated. Especially in the case of risky (first-time) equity IPOs, there will continue to be an important role for managing the information exchange between issuers and investors that is critical to the IPO process. [source] Price Discovery in Initial Public Offerings and the Role of the Lead UnderwriterTHE JOURNAL OF FINANCE, Issue 6 2000Reena Aggarwal We examine the price discovery process of initial public offerings (IPOs) using a unique dataset. The first quote entered by the lead underwriter in the five-minute preopening window explains a large proportion of initial returns even for hot IPOs. Significant learning and price discovery continues to take place during these five minutes with hundreds of quotes being entered. The lead underwriter observes the quoting behavior of other market makers, particularly the wholesalers, and accordingly revises his own quotes. There is a strong positive relationship between initial returns and the time of day when trading starts in an IPO. [source] Do futures lead price discovery in electronic foreign exchange markets?THE JOURNAL OF FUTURES MARKETS, Issue 2 2009Juan Cabrera Using intraday data, this study investigates the contribution to the price discovery of Euro and Japanese Yen exchange rates in three foreign exchange markets based on electronic trading systems: the CME GLOBEX regular futures, E-mini futures, and the EBS interdealer spot market. Contrary to evidence in equity markets and more recent evidence in foreign exchange markets, the spot market is found to consistently lead the price discovery process for both currencies during the sample period. Furthermore, E-mini futures do not contribute more to the price discovery than the electronically traded regular futures. © 2008 Wiley Periodicals, Inc. Jrl Fut Mark 29:137,156, 2009 [source] Information transmission in electronic versus open-outcry trading systems: An analysis of U.S. equity index futures marketsTHE JOURNAL OF FUTURES MARKETS, Issue 7 2005Aysegul Ates In this article the intraday price discovery process between regular index futures (floor trading) and E-mini index futures (electronic trading) in the S&P 500 and Nasdaq 100 index futures markets is examined, using intraday data from the introduction of the E-mini index futures to 2001. Using both information shares (Hasbrouck, J., 1995) and common long-memory factor weights (Gonzalo, J., & Granger, C. W. J., 1995) techniques, we find that both E-mini index futures and regular index futures contribute to the price discovery process. However, since September 1998, the contribution made by E-mini index futures has been greater than that provided by regular index futures. Based on regression analysis, we have also found direct empirical evidence to support the hypothesis that the joint effects of operational efficiency and relative liquidity determine the greater contribution made towards price discovery by electronic trading relative to open-outcry trading over time. © 2005 Wiley Periodicals, Inc. Jrl Fut Mark 25: 679,715, 2005 [source] Price discovery in the hang seng index markets: Index, futures, and the tracker fundTHE JOURNAL OF FUTURES MARKETS, Issue 9 2004Raymond W. So In this paper, price discovery among the Hang Seng Index markets is investigated using the Hasbrouck and Gonzalo and Granger common-factor models and the multivariate generalized autoregressive conditional heteroskedasticity (M-GARCH) model. Minute-by-minute data from the Hang Seng Index, Hang Seng Index futures, and the tracker fund show that the movements of the three markets are interrelated. The futures markets contain the most information, followed by the spot market. The tracker fund does not contribute to the price discovery process. The three markets exhibit spillover effects, indicating that their second moments are linked, even though the flow of information from the tracker fund to the other markets is minimal. Overall results suggest that the three markets have different degrees of information processing abilities, although they are governed by the same set of macroeconomic fundamentals. © 2004 Wiley Periodicals, Inc. Jrl Fut Mark 24:887,907, 2004 [source] The dynamics of the relationship between spot and futures markets under high and low variance regimesAPPLIED STOCHASTIC MODELS IN BUSINESS AND INDUSTRY, Issue 6 2009Ming-Yuan Leon Li Abstract This investigation is one of the first studies to examine the dynamics of the relationship between spot and futures markets using the Markov-switching vector error correction model. Three mature stock markets including the U.S. S&P500, the U.K. FTSE100 and the German DAX 30, and two emerging markets including the Brazil Bovespa and the Hungary BSI, are used to test the model, and the differences between the two sets of markets are examined. The empirical findings of this study are consistent with the following notions. First, after filtering out the high variance regime, the futures price is shown to lead the spot price in the price discovery process, as demonstrated by prior studies; conversely, the spot market is more informationally efficient than the futures market under the high variance condition. Second, the price adjustment process triggered by arbitrage trading between spot and futures markets during a high variance state is greater in scale than that based on a low variance state, and the degree of the co-movement between spot and futures markets is significantly reduced during the high variance state. Third, a crisis condition involved in the high variance state is defined for the two emerging markets, whereas an unusual condition is presented for the three mature markets. Last, the lagged spot,futures price deviations perform as an information variable for the variance-turning process. However, the portion of the variance-switching process accounted for by this signal variable is statistically marginal for the three mature markets selected for this study. Copyright © 2008 John Wiley & Sons, Ltd. [source] | ||||||||||