Scandinavian Working Papers in Economics
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Department of Economics, Lund University Working Papers, Department of Economics, Lund University

No 2015:4:
A Factor Analytical Approach to Price Discovery

Joakim Westerlund (), Simon Reese () and Paresh Narayan ()

Abstract: Existing econometric approaches for studying price discovery presume that the number of markets are small, and their properties become suspect when this restriction is not met. They also require making identifying restrictions and are in many cases not suitable for statistical inference. The current paper takes these shortcomings as a starting point to develop a factor analytical approach that makes use of the cross-sectional variation of the data, yet is very user-friendly in that it does not involve any identifying restrictions or obstacles to inference.

Keywords: Price discovery; panel data; common factor models; cross-unit cointegration; (follow links to similar papers)

JEL-Codes: C12; C13; C33; (follow links to similar papers)

35 pages, December 30, 2014

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This paper is published as:
Westerlund, Joakim, Simon Reese and Paresh Narayan, (2017), 'A Factor Analytical Approach to Price Discovery', Oxford Bulletin of Economics and Statistics, Vol. 79, No. 3, pages 366-394

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