Efficient Pricing Research Articles

AI-Powered Trading, Algorithmic Collusion, and Price Efficiency

AI-Powered Trading, Algorithmic Collusion, and Price Efficiency

Coordinated vs Efficient Prices: The Impact of Algorithmic Pricing on Multifamily Rental Markets

Coordinated vs Efficient Prices: The Impact of Algorithmic Pricing on Multifamily Rental Markets

Does Investor Sentiment Affect the Efficiency of Stock Pricing? -- Textual Evidence from the Stock Bar in China

Does Investor Sentiment Affect the Efficiency of Stock Pricing? -- Textual Evidence from the Stock Bar in China

Deadline Differentiated Dynamic EV Charging Price Menu Design

The increasing number of electric vehicles (EVs) on the road brings both opportunities and challenges to the power system. For the EV charging stations (EVCSs), it is often difficult to conduct effective operations due to the incomplete information in EVs’ departure times and the opacity of their preference information. To tackle this challenge, we seek to design the optimal deadline differentiated dynamic price menu that offers multiple choice-pairs of deadlines and charging prices. We prove that such price menus can incentivize EVs to truthfully reveal their departure time. We then analyze the properties of the optimal price menu with complete EV information, i.e., social optimality and first-degree price discrimination. For the incomplete information case, we first design a systematic method to estimate the utility and demand information for a large population of EVs based on EV behavior data. Then, we employ mixed-integer quadratic programming for the efficient optimal price menu design. The numerical study based on field data in California verifies the remarkable performance of our designed price menu.

Topic: A Study of Informational Efficiency in Nifty 50 - Event Study.

Market efficiency and asset pricing  has been intriguing topic for all financial economists.  Researchers have been actively studying on the various aspects of market microstructure and market efficiency since 1950s. The area still holds its significance ,as newer dimensions are being explored. The objective of this paper is to study Informational efficiency of Nifty -50 and how events like result announcements impacts the efficiency of individual stock. Efficient market hypothesis implies that the stocks follow random walk and it is impossible to make trading strategies in the longer run. In shorter period there may be a lag between the stock prices and new information related to the stocks, however it adjusts very quickly. In this paper we have tested for the random walk of Nifty in two different time horizon and Informational efficiency of three heavy weighted stocks of Nifty 50. Another pilot study has been calculated on top three heavy weighted stocks of Nifty -50 to check informational efficiency and how quickly stocks adjust to new information in the form of results. The methodologies used to test the hypothesis are ‘Variance ratio’ introduced by (Lo and Mackinlay,1998)  and then used by many researchers for the test of random walk. (Omar, S. et al 2018; Cao, C. et al 2017; Charles and Darne, 2009,) and Event Study methodology. Findings of the study shows that the Nifty -50 does not follow random walk phenomenon, neither in the short long and nor in the long run. The pilot study of Informational efficiency found that two heavy weighted stocks (Reliance Industries and HDFC bank) shows that event has a significant impact on the stocks, Moreover the market was not able to factor the available information the stocks declined in the adjustment window as well. The null hypothesis of CAR being equal to 0 has been rejected and Null hypothesis is accepted. In both the test the Semi -Weak form of market efficiency has been rejected.

Optimal damping with a hierarchical adaptive quadrature for efficient Fourier pricing of multi-asset options in Lévy models

Optimal damping with a hierarchical adaptive quadrature for efficient Fourier pricing of multi-asset options in Lévy models

Comparing asymmetric price efficiency in regional ESG markets before and during COVID-19.

The ever-emerging environmental, social, and governance (ESG) concerns have received significant attention of policymakers, governments, regulation bodies, and investors. Considering the markets volatilities due to economic and financial uncertainties that can drive the informational price inefficiencies across the markets, this study compares the asymmetric price efficiency of regional ESG markets by using an asymmetric multifractal detrended fluctuation analysis before and during COVID-19 crisis. We then examine whether global factors influence the asymmetric efficiency of regional ESG markets. Our findings reveal that COVID-19 outbreak reduced the efficiency of regional ESG markets, except for Europe, which sustained its efficiency even during the pandemic. Moreover, global factors drive the efficiency of regional ESG markets significantly before and during COVID-19. A major implication of our findings stems from the fact that a contagion reduces the efficiency of the markets while stable economic conditions make those markets informationally efficient.

Does macroeconomic environment stimulate herding behaviour among investors in Malaysia stock market? an empirical evidence

Herding behaviour could cause stock prices to deviate from the fundamentals, resulting in market instability. One of the influencing factors that stimulate herding behaviour amongst investors is macroeconomic environment. Among the major macroeconomic variables that play important role in influencing herding behaviour are economic growth, exchange rate, interest rates and inflation rate. However, empirical evidence on this is still lacking especially in the case of emerging markets such as Malaysia. Therefore, the main objective of this paper is to empirically examine the influence of macroeconomic variables on the existence of herding behaviour in the Malaysian stock market.  In this study, two measures of herding behaviour have been used: Cross-Sectional Standard Deviation (CSSD) and Cross-Sectional Absolute Deviation (CSAD).  The estimation used daily data of 346 companies listed on the Malaysian stock market from the year 2000-2019. The regression estimation results using CSSD with individual macroeconomic variable found that herding behaviour is detected in the case of interest rate and inflation. Meanwhile, for CSAD, the results demonstrate that herding behaviour is present in the case of interest rate, inflation rate and growth. Meanwhile, for the regression that consists of all macroeconomic variables, both measures are negatively and significantly related to interest rates and inflation rates. The findings offer additional evidence in supporting the existence of herding behaviour in Malaysia under the influence of selected macroeconomic variables.  Therefore, establishing better routes for economic information dissemination could assist investors to make a better investment decision. With a better understanding about herding behaviour could assist regulators to detect price efficiency issues hence to maintain market stability and efficiency.

The Effect of Stock Market Indexing on Option Price Efficiency

The Effect of Stock Market Indexing on Option Price Efficiency

Оценка влияния маржинальных требований на ликвидность российского рынка фьючерсов

The implementation of a margin system in derivatives markets has a positive effect on market liquidity and market pricing efficiency. At the same time, portfolio diversification and hedging are not fully taken into account when assessing margin requirements. Therefore, in order to comply with regulatory requirements, the exchange sets excessive margins. IAs Charoula Daskalaki and George Skiadopoulos have shown, overestimation of margin requirements reduces the positive effect of the existence of a margin system. However, quantification of this observation has not been presented in studies before. This paper quantifies the dependence of market liquidity on the level of margin. The study is conducted on data from futures contracts for 19 underlying assets traded on the Moscow Exchange between 2014 and 2021, using an autoregressive moving average model with exogenous factors (ARMAX). The stability of the obtained results is determined by comparing different model specifications with different sliding window sizes. The analysis not only confirmed the fact that margin requirements, which protect the exchange's capital, reduce the positive effect of implementing a margin system but also allowed to evaluate it quantitatively: a 1% increase in margin requirements in relative terms reduces trading volume from 2.5 to 7% and the volume of open positions from 0.2 to 0.9%, depending on the type of position and trader. The impact on trading volume is on average stable over time, and there are local trends and tipping points for the volume of open positions.

Capturing Flexibility Gains by Efficient Price Models for District Heating

Capturing Flexibility Gains by Efficient Price Models for District Heating

Alternative models for FX, arbitrage opportunities and efficient pricing of double barrier options in L\'evy models

Alternative models for FX, arbitrage opportunities and efficient pricing of double barrier options in L\'evy models

Information Entropy Theory and Asset Valuation: A Literature Survey

The purpose of this study is to review the empirical work applied to market efficiency, portfolio selection and asset valuation, focusing on the presentation of the comprehensive theoretical framework of Information Entropy Theory (IET). In addition, we examine how entropy addresses the shortcomings of traditional models for valuing financial assets, including the market efficiency hypothesis, the capital asset pricing model (CAPM), and the Black and Scholes option pricing model. We thoroughly reviewed the literature from 1948 to 2022 to achieve our objectives, including well-known asset pricing models and prominent research on information entropy theory. Our results show that portfolio managers are particularly attracted to valuations and strive to achieve maximum returns with minimal risk. The entropy-based portfolio selection model outperforms the standard model when return distributions are non-Gaussian, providing more comprehensive information about asset and distribution probabilities while emphasising the diversification principle. This distribution is then linked to the entropic interpretation of the no-arbitrage principle, especially when extreme fluctuations are considered, making it preferable to the Gaussian distribution for asset valuation. This study draws important conclusions from its extensive analysis. First, entropy better captures diversification effects than variance, as entropy measures diversification effects more generically than variance. Second, mutual information and conditional entropy provide reasonable estimates of systematic and specific risk in the linear equilibrium model. Third, entropy can be used to model non-linear dependencies in stock return time series, outperforming beta in predictability. Finally, information entropy theory is strengthened by empirical validation and alignment with financial views. Our findings enhance the understanding of market efficiency, portfolio selection and asset pricing for investors and decision-makers. Using Information Entropy Theory as a theoretical framework, this study sheds new light on its effectiveness in resolving some of the limitations in traditional asset valuation models, generating valuable insights into the theoretical framework of the theory.

Herding to Market Consensus: An Empirical Investigation of its Presence in Nepal Stock Exchange

The study examines herd formation in Nepalese equity market. The study uses linear regression models including quadratic variant to model the relationship between return dispersion of individual scrips and aggregate market return for finding the herding behavior. The study does not find presence of herding. On the contrary, when presence of herding is tested for bearish and bullish trend, herd formation is detected in bullish trend. The study supports the notion that Nepalese equity market is prone to behavioral biases leading to pricing inefficiencies. The findings of the study can be helpful to make policies to protect retail investors from downside risk arising from these behavioral biases.

Technical Efficiency of Catfish (Clarias Sp.) Farming Production Business: A Case Study in Srimulya Village, Sematang Borang District, Palembang

One of the catfish production centers in Palembang City is located in Srimulya Village, Sematang Borang District. Srimulya Village is planned to be confirmed as a Fisheries Area in Palembang City. This study aims to analyze the level of technical efficiency, price efficiency and economic efficiency of catfish cultivators, Srimulya Village, Sematang Borang District, Palembang City. This research was conducted in September 2022. Sampling was carried out using proportional random sampling technique with a total of 30 respondents. The data used include primary data and secondary data. Data were analyzed descriptively qualitatively and descriptively quantitatively. Researchers used qualitative methods, namely by analyzing the characteristics of each respondent. Technical efficiency were analyzed using Frontier 4.1 software. The results showed level of technical, allocative and economic efficiency of catfish farming business in Srimulya Village, Sematang Borang District, Palembang is in an inefficient condition. Based on the technical efficiency criteria, if the efficiency value is 0.91 (<1), it means that the allocation of the use of production inputs exceeds the efficiency value so that the use of production inputs must be reduced. Allocative efficiency (price) of 1.87 (>1) means that it is inefficient in terms of price. Judging from the value of the economic efficiency of the business of 1.70 (> 1), it means that the catfish farming business is not yet economically efficient.

Procedural Fairness in Exchange Matching Systems.

The move from open outcry to electronic trading added another responsibility to futures exchanges-that of matching orders between buyers and sellers. Matching systems can affect the level and speed of price discovery, the distribution of revenue, as well as the level of price efficiency of a given market. Whether the matching system is procedurally fair is another important consideration. I argue that while FIFO (First In First Out) is a fair procedure in principle and is perceived as the default matching system, it is not a fair procedure in practice. Likewise, while pro rata is a fair procedure in principle, it is not so in practice. Nevertheless, both FIFO and pro rata are relics of an open outcry system. Instead, I propose an alternative approach to matching systems that builds on the strengths of electronic trading-the ability to randomize in real time. I introduce random selection for service (RSS) as a matching system that is procedurally fair both in principle and in practice.

Natural Gas Price Inefficiencies as an Obstacle in Taming EU Inflation

During both the Covid-19 and energy crises, EU member states were forced to dedicate a tremendous amount of financial support to ensure economic survival and recovery, which inadvertently triggered inflation pressures. But as countries opted to switch from targeted measures against high energy prices to horizontal ones due to both political and practical reasons, demand-side inflation began to determine core inflation to an extent equal to that of the supply-side. Given that EU member states cannot withdraw fiscal support at the moment, as natural gas prices remain extraordinarily high, the focus must shift towards addressing the inefficiencies of natural gas pricing in the EU. By correcting those inefficiencies, pricing will reflect actual supply conditions, out of which increased LNG availability is the most important one, thus allowing countries to roll back fiscal support and monetary authorities to address inflation.

Economics of production and marketing of fish in Dang district of Nepal

A study was carried out to analyze the economics of fish production and marketing in Dang district of Nepal. Structured survey was done with 75 respondents (45 producers, 5 wholesalers, 10 retailers, and 15 consumers) in three different sites of Dang district (viz: Lamahi Municipality, Rapti Rural Municipality and Gadhawa Rural Municipality). The initial investment, cost of production and returns, production function, price spread,and marketing margin, and ranking of production and marketing problems of fish were done by index ranking techniques. Financial analysis showed that the total initial investment per hectare of fishpond was found to be NRs. 9, 68,394 with the annual production cost of NRs. 6, 93,483. The total return was found to be NRs. 932,088 and net profit realized per hectare was NRs. 238,604. Out of total cost, about 73.70% was variable cost and the remaining 26.30% was fixed cost. Of the total variable cost, the cost of feed (58.63%) was significantly higher followed by the cost of fingerlings (12.94%), labor (11.37%), manure and fertilizer cost (8.33%) fuel/ energy (4.46%) and maintenance cost (4.27%) respectively. The benefit cost ratio (B/C ratio) was found to be 1.82 which implies that the fish enterprise was found to be profitable in the study area. The research also revealed that the producer’s share was 78.17% with price spread of 71.57 and marketing efficiency of 90.81%. The value sum of the estimated parameters associated with all the inputs is 0.52 which indicates the decreasing return to scale. Lack of technological know-how and unavailability of inputs on time are the major production problems. Inefficient price information system and competition with the Indian fish are the major marketing problems. Thus, for sustainable production and marketing of fish government should focus primarily on technological dissemination and better pricing policy.

Decomposing airline profit inefficiency in NDEA through the non-competitive Nerlovian profit inefficiency model

With airlines operating in an imperfectly competitive market environment, this study focuses on the important role of price variables. A network data envelopment analysis (NDEA)-based Nerlovian profit inefficiency model for a group of international airlines was proposed, in which the property of unstorable intermediate outputs in the air transport industry is considered. The profit inefficiency of airlines is then decomposed into two stages: cost inefficiency in the production stage and revenue inefficiency in the consumption stage. Both cost inefficiency and revenue inefficiency are further decomposed into three sub-inefficiencies: technical inefficiency, price inefficiency, and allocation inefficiency. The empirical results show that all airlines are profit inefficient and their profit inefficiency is due to different sub-inefficiency components. In terms of overall profit inefficiency, the revenue inefficiency at the consumption stage is the main cause, and price inefficiency is a major component of revenue inefficiency on average.

“Truck Lagbe” app powered goods transportation

This case presents the background, operational modalities, and benefits of this first application (APP) based truck booking service, “Truck Lagbe.” This is an app that has digitally created a marketplace where truck owners or drivers and buyers or truck tenants rent trucks through price negotiations. This case has emphasized its uniqueness and the strategies they used to become successful. All information has been collected through secondary sources. It is a two-sided marketplace; truck owners/drivers and shippers. Fortunately, “Truck Lagbe” has made life much easier for truck drivers/owners or those who hire trucks, enabled coordination, reduced controversy in the whole process from truck hire to payment, and improved efficiency and flexible price through bidding. “Truck Lagbe” offers three categories of services: B2C, business solution, and enterprise solution. B2C or individual customers are those who may have rented a truck for once to shift their home or to carry small items or goods, usually for one time. The business solution category is where the pickup location will be the same, but the delivery location may be different, or the pickup location is the same, but delivery in different regions. Finally, an enterprise solution is a solution where a fixed account manager offers a variety of advice to the particular business owner, such as VAT, AIT and Tax, and a minimum of 10 business purpose truck rental agreements be fixed. In short, “Truck Lagbe” is a platform where “a single click will move anything.”