Price Discovery: The Economic Function of a Stock Exchange
This article defines an exchange according to its primary function: establishing shares’ trading prices. After establishing the public goods property of an exchange-produced price, the article stresses that price discovery is a complex process that depends on market structure. Recognizing that the quality of price discovery can be inferred from the magnitude of intraday price volatility, the authors display intraday volatility for a sample of DOW stocks, show how volatility decreased for NASDAQ stocks following the institution of NASDAQ’s calls in 2004, and trace the broader evolution of intraday volatility from 1993 to 2011.
The Journal of Portfolio Management
Alan, Nazli Sila and Schwartz, Robert A., "Price Discovery: The Economic Function of a Stock Exchange" (2013). Business Faculty Publications. 167.
Alan, Nazli Sila, and Robert A. Schwartz. "Price Discovery: The Economic Function of a Stock Exchange." The Journal of Portfolio Management 40.1 (2013): 124-132.