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 .

Price discovery is different from valuation

Valuation

-Economics:*Valuation , the determination of the economic value of an asset or liability**Real estate appraisal, sometimes called property valuation , the appraisal of land or buildings...

. Price discovery process involves buyers and sellers arriving at a transaction price for a specific item at a given time. It involves the following:

• 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

Commodity

In economics, a commodity is the generic term for any marketable item produced to satisfy wants or needs. Economic commodities comprise goods and services....

 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

• Auction
  Auction
  An auction is a process of buying and selling goods or services by offering them up for bid, taking bids, and then selling the item to the highest bidder...
  
  
• Efficient market hypothesis
  Efficient market hypothesis
  In finance, the efficient-market hypothesis asserts that financial markets are "informationally efficient". That is, one cannot consistently achieve returns in excess of average market returns on a risk-adjusted basis, given the information available at the time the investment is made.There are...
  
  
• Market-based valuation
  Market-based valuation
  Market-based valuation is a form of stock valuation that refers to market indicators, also called "extrinsic" criteria .- Examples of market valuation methods :...
  
  
• Pricing
  Pricing
  Pricing is the process of determining what a company will receive in exchange for its products. Pricing factors are manufacturing cost, market place, competition, market condition, and quality of product. Pricing is also a key variable in microeconomic price allocation theory. Pricing is a...
  
  
• Real estate appraisal
  Real estate appraisal
  Real estate appraisal, property valuation or land valuation is the process of valuing real property. The value usually sought is the property's Market Value. Appraisals are needed because compared to, say, corporate stock, real estate transactions occur very infrequently...
  
  
• Stock valuation
  Stock valuation
  In financial markets, stock valuation is the method of calculating theoretical values of companies and their stocks. The main use of these methods is to predict future market prices, or more generally potential market prices, and thus to profit from price movement – stocks that are judged...
  
  
• Arbitrage pricing theory
  Arbitrage pricing theory
  In finance, arbitrage pricing theory is a general theory of asset pricing that holds that the expected return of a financial asset can be modeled as a linear function of various macro-economic factors or theoretical market indices, where sensitivity to changes in each factor is represented by a...
  
   (APT)
• Single-index model