@article {Hua142, author = {Jian Hua and Robert A. Schwartz and Gregory Sipress}, title = {Using Simulation to Better Understand Price Determination in a Nonfrictionless Equity Market}, volume = {44}, number = {1}, pages = {142--159}, year = {2017}, doi = {10.3905/jpm.2017.44.1.142}, publisher = {Institutional Investor Journals Umbrella}, abstract = {This article focuses on simulation analysis, a tool that has received relatively sparse attention in the literature. In a laboratory-type environment, simulation can generate data that enable a complex nonfrictionless environment to be assessed in a tractable manner that might not otherwise be readily achievable. This article illustrates these thoughts with reference to Grossman and Stiglitz{\textquoteright}s 1976 seminal paper on price formation in an equity market. The authors show that the dynamic process of price formation in a nonfrictionless market can generate returns exhibiting accentuated short-period volatility, kurtosis, and return autocorrelations. They explore several applications of these findings.TOPICS: Simulations, security analysis and valuation}, issn = {0095-4918}, URL = {https://jpm.pm-research.com/content/44/1/142}, eprint = {https://jpm.pm-research.com/content/44/1/142.full.pdf}, journal = {The Journal of Portfolio Management} }