Price discovery and asset pricing

Paresh Kumar Narayan, Dinh Hoang Bach Phan, Kannan Thuraisamy, Joakim Westerlund

Research output: Contribution to journalArticleResearchpeer-review

22 Citations (Scopus)

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.

Original languageEnglish
Pages (from-to)224-235
Number of pages12
JournalPacific Basin Finance Journal
Volume40
Issue numberPart A
DOIs
Publication statusPublished - Dec 2016
Externally publishedYes

Keywords

  • Asset pricing
  • Islamic stocks
  • Out-of-sample
  • Predictive regression
  • Price discovery

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