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A Factor Analytical Approach to Price Discovery
Author(s) -
Westerlund Joakim,
Reese Simon,
Narayan Paresh
Publication year - 2017
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/obes.12167
Subject(s) - inference , econometrics , suspect , computer science , point (geometry) , statistical inference , factor (programming language) , economics , statistics , artificial intelligence , mathematics , political science , law , programming language , geometry
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.