Price discovery and asset pricing

Paresh Narayan (), Dinh Phan (), Kannan Thuraisamy and Joakim Westerlund

Pacific-Basin Finance Journal, 2016, vol. 40, issue PA, 224-235

Abstract: This paper tests the hypothesis that price discovery influences asset pricing. Our innovations are twofold. First, we estimate time-varying price discovery for a large number (21) of Islamic stock portfolios. Second, we test using a predictive regression model whether or not price discovery predicts stock excess returns. We find from both in-sample and out-of-sample tests that all 21 portfolio excess returns are predictable. We show that a mean-variance investor by tracking price discovery is able to devise profitable trading strategies.

Keywords: Price discovery; Asset pricing; Islamic stocks; Predictive regression; Out-of-sample (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:40:y:2016:i:pa:p:224-235

DOI: 10.1016/j.pacfin.2016.08.009

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