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Detecting Unobserved Heterogeneity in Efficient Prices via Classifier-Lasso.
- Source :
- Journal of Business & Economic Statistics; Apr2023, Vol. 41 Issue 2, p509-522, 14p
- Publication Year :
- 2023
-
Abstract
- This article proposes a new measure of efficient price as a weighted average of bid and ask prices, where the weights are constructed from the bid-ask long-run relationships in a panel error-correction model (ECM). To allow for heterogeneity in the long-run relationships, we consider a panel ECM with latent group structures so that all the stocks within a group share the same long-run relationship and do not otherwise. We extend the Classifier-Lasso method to the ECM to simultaneously identify the individual's group membership and estimate the group-specific long-run relationship. We establish the uniform classification consistency and good asymptotic properties of the post-Lasso estimators under some regularity conditions. Empirically, we find that more than 30% of the Standard & Poor's (S&P) 1500 stocks have estimated efficient prices significantly deviating from the midpoint—a conventional measure of efficient price. Such deviations explored from our data-driven method can provide dynamic information on the extent and direction of informed trading activities. [ABSTRACT FROM AUTHOR]
- Subjects :
- PRICES
BID price
HETEROGENEITY
Subjects
Details
- Language :
- English
- ISSN :
- 07350015
- Volume :
- 41
- Issue :
- 2
- Database :
- Complementary Index
- Journal :
- Journal of Business & Economic Statistics
- Publication Type :
- Academic Journal
- Accession number :
- 162805828
- Full Text :
- https://doi.org/10.1080/07350015.2022.2036613