Price Discovery Processes

Jerome Stein

The Economic Record, 1992, vol. 68, issue S1, 34-45

Abstract: This paper analyzes two price discovery processes: OLS learning from public information and a Bayesian learning made feasible by futures markets. The former tends to produce cobweb behaviour. In the latter, there is no cobweb, there is a faster convergence to Muth Rational Expectations, and the forecast errors are positively serially correlated The evidence drawn from the Sydney Futures Exchange is consistent with the Bayesian learning process.

Date: 1992
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