We propose a new measure to establish price leadership among multiple related price series using a multivariate Markov chain model. This new measure, the price leadership share (PLS), can easily be calculated when price series are related but not fully cointegrated (e.g. there is a fractional cointegration and the unit root test fails) and with more than two price series simultaneously, offering advantages over the existing price discovery measures. In addition, we propose a price leadership concentration index to help the comparative analysis. The measure is tested on six gold contracts, including spot, futures, and ETF, with a global coverage over a 2-year period. Results show that gold futures contracts, mainly the US contract (CME futures), have a major role in the price discovery function confirming the previous literature’s findings. Overall, the PLS measure overcomes the limits of other existing price discovery measures.
The price leadership share: a new measure of price discovery in financial markets / De Blasis, R.. - In: ANNALS OF FINANCE. - ISSN 1614-2446. - 16:3(2020), pp. 381-405. [10.1007/s10436-020-00371-3]
The price leadership share: a new measure of price discovery in financial markets
De Blasis R.
2020-01-01
Abstract
We propose a new measure to establish price leadership among multiple related price series using a multivariate Markov chain model. This new measure, the price leadership share (PLS), can easily be calculated when price series are related but not fully cointegrated (e.g. there is a fractional cointegration and the unit root test fails) and with more than two price series simultaneously, offering advantages over the existing price discovery measures. In addition, we propose a price leadership concentration index to help the comparative analysis. The measure is tested on six gold contracts, including spot, futures, and ETF, with a global coverage over a 2-year period. Results show that gold futures contracts, mainly the US contract (CME futures), have a major role in the price discovery function confirming the previous literature’s findings. Overall, the PLS measure overcomes the limits of other existing price discovery measures.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.