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The price discovery process (also called price discovery mechanism) is the process of determining the price of an asset in the marketplace through the interactions of buyers and sellers.^[1]

Price discovery is different from valuation. Price discovery process involves buyers and sellers arriving at a transaction price for a specific item at a given time. It involves the following: ^[2]

• Buyers and seller (number, size, location, and valuation perceptions)
• Market mechanism (bidding and settlement process, liquidity)
• Available information (amount, timeliness, significance and reliability) including
  • futures and other related markets
• Risk management choices.

In a dynamic market, the price discovery takes place continuously. The price will sometimes fall below the duration average and sometimes exceed the average as a result of the noise due to uncertainties.

Usually, price discovery helps find the exact price for a commodity or a share of a company. The price discovery is used in speculative markets which affects traders, manufacturers, exporters, farmers, oil well owners, refineries, governments, consumers, and speculators.

See also[link]

• Auction
• Efficient market hypothesis
• Market-based valuation
• Pricing
• Real estate appraisal
• Stock valuation
• Arbitrage pricing theory (APT)
• Single-index model

References[link]

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