The Role of Information in Price Discovery

Started: 5th October 2009
Ended: 31st May 2010
Research Team: Camillia Zedan
Investigators: Antonella Ianni, Seth Bullock

The recent economic crisis has highlighted a continued vulnerability and lack of understanding in the financial markets. In order to overcome this, many believe that current market models must be improved. Recently, a trend towards agent-based modelling has emerged. Viewing the economy as a complex system is beginning to be seen as key to explaining certain market characteristics that were originally considered anomalies.

One of the fundamental assumptions in economics is that of information efficiency: that the price of a stock reflects its worth, that all possible information about a security is publicly known, and that any changes to price take place instantaneously. In reality, however, this is not the case.

This project considers the use of agents in modelling economic systems and demonstrates the effect of information levels on price discovery using a simple market simulation.

Computational Modelling Group

The Role of Information in Price Discovery

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