The hidden information content of price movements

Dynamic patterns of prices in different markets may motivate (strategic) consumers, who could be monitoring price movements over time, to game vendors. Do past price movements carry information about the probability and magnitude of future price drops? Conducting empirical work in the airline industry on near 1000 US domestic routes, we find that some price‐metrics carry information about future price swings: these variables can assist in predicting the likelihood and magnitude of price drops. These price‐metrics yield significantly different signals which also vary as the prediction horizon changes.