The price leadership share: a new measure of price discovery in financial markets

Riccardo De Blasis ()
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Riccardo De Blasis: Università Politecnica delle Marche

Annals of Finance, 2020, vol. 16, issue 3, No 3, 405 pages

Abstract: 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.

Keywords: Price leadership; Price discovery; Market fragmentation; Multivariate Markov chain; Mixture transition distribution (search for similar items in EconPapers)
JEL-codes: C02 G10 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (9)

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DOI: 10.1007/s10436-020-00371-3

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