The Efficiency of the Information Processing in the Australian Dollar Market: Price Discovery Following Scheduled and Unscheduled News

A consignment auction aims to increase political feasibility by reducing the financial burden of initial permits allocation and to do the role of price discovery. However, previous analytical models presented contradictory results for the price discovery function of a consignment auction. Thus, this study reexamines whether a consignment auction can perform its price discovery function. The study uses a simple game model with several assumptions differentiated from previous analytical models: explicit consideration of the secondary market and firms as price-takers with various behaviors to respond to uncertainty about the price in the secondary market. Firms are classified into three types: speculators who seek arbitrage, doctrinarians who determine a permit demand based on an estimation of their marginal abatement cost, and neutralists who keep a permit demand the same as initial emission endowments. The results reveal that when a consignment auction was introduced, the expected equilibrium price was identical to that of the secondary market price, demonstrating that the auction could deliver the price discovery function. This is because speculators and doctrinarians provide information about their price expectations and marginal abatement cost through their estimated demand functions. Additionally, the smaller number of neutralists is, and the higher the risk-seeking propensity of speculators is, the more effective the price discovery function is.

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Information Processing and Financial Market Price Adjustments

Theoretical Economics Letters ◽

10.4236/tel.2019.97148 ◽

2019 ◽

Vol 09 (07) ◽

pp. 2337-2353

Author(s):

Edwin H. Neave ◽

William R. Scott

Keyword(s):

Information Processing ◽

Financial Market ◽

Market Price ◽

Price Adjustments

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Active Funds and Bundled News

The Accounting Review ◽

10.2308/tar-2018-0380 ◽

2021 ◽

Author(s):

Charles M. C. Lee ◽

Christina Zhu

Keyword(s):

Price Discovery ◽

Market Price ◽

Earnings Announcements ◽

Price Adjustment ◽

Level Data ◽

Managed Funds

We use trade-level data to examine the role of actively managed funds (AMFs) in earnings news dissemination. We find AMFs are drawn to, and participate disproportionately more in, earnings announcements (EAs) that include bundled managerial guidance. When the two pieces of news are directionally inconsistent, AMFs trade in the direction of future guidance rather than current earnings. AMFs exhibit an ability to discern, and adapt their trading to, the bias in bundled guidance. While AMF trades at EAs are generally more profitable than their non-EA trades, this result reverses when guidance bias is extreme. Overall, we find increased AMF trading during EAs leads to faster price adjustment. Collectively, these findings suggest AMFs are sophisticated processors of bundled earnings news, and their trading generally improves market price discovery.

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