The Dynamics of Price Discovery

Yan, Bingcheng; Zivot, Eric

doi:10.2139/ssrn.617161

Cited by 36 publications

(28 citation statements)

References 84 publications

(164 reference statements)

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“…Equation (17) also suggests that, although the multiple market prices share the common efficient price, the pricing errors in diverse markets may have different temporal responses to new information. Yan and Zivot (2006) show that the parameters of the SMA model (13) may be uniquely identified from the parameters of the reduced form VEC model (2) using a modification of Gonzalo and Ng's (2001) permanent-transitory decomposition. The permanent shock is defined as η P t = ψ 0 e t and the transitory shock η T t is defined from…”

Section: Information Sharementioning

confidence: 99%

A structural analysis of price discovery measures

Yan

Zivot

2010

Journal of Financial Markets

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201

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We analyze the structural determinants of two widely used measures of price discovery between multiple markets that trade closely-related securities. Using a structural cointegration model, we show that both the information share (IS) and component share (CS) measures account for the relative avoidance of noise trading and liquidity shocks, but that only the IS can provide information on the relative informativeness of individual markets. In particular, the IS of one market is higher if it incorporates more new information and/or impounds less liquidity shocks. Use of the CS in conjunction with the IS can help sort out the confounding effects of the two types of shocks. Furthermore, we find that the IS only accounts for the immediate (one-period) responses of market prices to the news innovation which implies that the IS estimates based on high sampling frequencies may be distorted by transitory frictions and may miss important price discovery dynamics. * We thank

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Section: Information Sharementioning

confidence: 99%

A structural analysis of price discovery measures

Yan

Zivot

2010

Journal of Financial Markets

Self Cite

201

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“…An efficient price-discovery process is characterised by a quick adjustment of market prices from the old to the new equilibrium as new information arrives (see, e.g., Yan and Zivot, 2007). In the analysis that follows, we show that the price-discovery process in the markets for sovereign credit risk in the euro area shows a time-variant pattern (Section 5.1).…”

Section: Price-discovery Analysismentioning

confidence: 78%

Credit-Risk Valuation in the Sovereign CDS and Bonds Markets: Evidence from the Euro Area Crisis

Arce¹,

Mayordomo

Peña

2012

SSRN Journal

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We analyse the extent to which prices in the sovereign credit default swap (CDS) and bond markets reflect the same information on credit risk in the context of the current crisis of the European Monetary Union (EMU). We first document that deviations between CDS and bond spreads are related to counterparty risk, common volatility in EMU equity markets, market illiquidity, funding costs, flight-to-quality, and the volume of debt purchases by the European Central Bank (ECB) in the secondary market. Based on this we conduct a state-dependent price-discovery analysis that reveals that the levels of the counterparty risk and the common volatility in EMU equity markets, and the banks' agreements to accept losses on their holdings of Greek bonds impair the ability of the CDS market to lead the price discovery process. On the other hand, the funding costs, the flight-to-quality indicator and the volume of debt purchases by the ECB worsen the efficiency of the bond market. We analyse the extent to which prices in the sovereign credit default swap (CDS) and bond markets reflect the same information on credit risk in the context of the current crisis of the European Monetary Union (EMU). We first document that deviations between CDS and bond spreads are related to counterparty risk, common volatility in EMU equity markets, market illiquidity, funding costs, flight-to-quality, and the volume of debt purchases by the European Central Bank (ECB) in the secondary market. Based on this we conduct a state-dependent price-discovery analysis that reveals that the levels of the counterparty risk and the common volatility in EMU equity markets, and the banks' agreements to accept losses on their holdings of Greek bonds impair the ability of the CDS market to lead the price discovery process. On the other hand, the funding costs, the flight-to-quality indicator and the volume of debt purchases by the ECB worsen the efficiency of the bond market. Óscar

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“…Wszystkie te interpretacje wskazują, że proces price discovery jest z natury dynamiczny. Jego skuteczność opiera się na bardzo szybkim dostosowywaniu się do nowego stanu równowagi wraz z pojawieniem się nowych informacji rynkowych (Yan i Zivot, 2007).…”

Section: Bibliografia Wprowadzenieunclassified

Rynek kapitałowy- efektywność i ryzyko

Czerwińska¹,

Nowak²

2016

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The Dynamics of Price Discovery

Cited by 36 publications

References 84 publications

A structural analysis of price discovery measures

A structural analysis of price discovery measures

Credit-Risk Valuation in the Sovereign CDS and Bonds Markets: Evidence from the Euro Area Crisis

Rynek kapitałowy- efektywność i ryzyko

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