The Introduction of PDI and the Analysis of the Price Discovery Factors
This study is conducted to propose and analyze PDI(price discovery index) in order to measure the price discovery effect. Using PDI makes it easier to compare the price discovery effect and thus each factor is independently meaningful. In order to verify the meaningfulness of PDI, this paper is summarized to compare the analysis result of the discovery effect by using the measurement results of the price discovery effect by PDI and VAR model of regression analysis. Also, analysis conducted to verify each factor such as liquidity, volatility and investors have a consequence for price discovery factors. In order to verify this analysis, the volume, trade value and open interest are considered as variables to measure the liquidity. The implied volatility and historical volatility are applied as observed variables to measure the volatility. For investors, dividing into individual, institutional and foreign investors, the analysis conducted on the effect of the market share changes of each investor group on the price discovery effect. The result of this empirical paper is summarized as follows. First, the result of the analysis on the price discovery effect using PDI is in accord with the price discovery effect using the VAR model regression demonstrated by an existing paper. This means the PDI plays an important role as the price discovery index. Second, the study showed that there is an inverse relationship between the volatility and the price discovery effect.
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