Price discovery and Volatility.A Theoretical Approach
Edson Kambeu · Olipha Mpofu · Drayton Muchochoma
International Journal of Finance & Banking Studies · 2017 · Vol. 6 / Issue 2 · 37
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Abstract
<p>In this paper we analyse and show how price discovery process influence the volatility of stocks. Using a theoretical approach, our initial analysis revealed that stocks experience ‘normal’ volatility as the price move from one equilibrium price to another as part of the price discovery process. Our further analysis revealed that, due to the inefficiency of financial markets, stocks also experience transitionary volatility which occurs when the price transition from one equilibrium price to another. The implication of these analytical findings means that the price discovery volatility effects can only be reduced by improving the efficiency of financial markets. Thus, we recommended that the financial microstructure be designed in a manner that promotes the efficiency of financial markets. </p>
Authors & affiliations
Edson Kambeu
Affiliation not supplied
Olipha Mpofu
Affiliation not supplied
Drayton Muchochoma
Affiliation not supplied
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