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Price Discovery and Asset Pricing

Westerlund, Joakim LU ; Sharma, Susan; Narayan, Paresh and Thuraisamy, Kannan (2016) In Pacific Basin Finance Journal 40(A). p.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.
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author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
Price discovery, Asset pricing, Islamic stocks, Predictive regression, Out-of-sample
in
Pacific Basin Finance Journal
volume
40
issue
A
pages
12 pages
publisher
Elsevier
external identifiers
  • scopus:84995773185
  • wos:000389092200015
ISSN
0927-538X
DOI
10.1016/j.pacfin.2016.08.009
language
English
LU publication?
yes
id
892260a8-bd8d-4b84-ba1f-8088c8e1d25f
date added to LUP
2016-10-28 11:48:04
date last changed
2017-09-18 11:28:34
@article{892260a8-bd8d-4b84-ba1f-8088c8e1d25f,
  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.},
  author       = {Westerlund, Joakim and Sharma, Susan and Narayan, Paresh and Thuraisamy, Kannan},
  issn         = {0927-538X},
  keyword      = {Price discovery,Asset pricing,Islamic stocks,Predictive regression,Out-of-sample},
  language     = {eng},
  number       = {A},
  pages        = {224--235},
  publisher    = {Elsevier},
  series       = {Pacific Basin Finance Journal},
  title        = {Price Discovery and Asset Pricing},
  url          = {http://dx.doi.org/10.1016/j.pacfin.2016.08.009},
  volume       = {40},
  year         = {2016},
}