What is the purpose of the information or price discovery premium?

The information or price discovery premium serves the essential purpose of bringing prices toward a rational level by incorporating new information into market prices. In efficient markets, prices should reflect all available information. When new information becomes known, especially if it is unexpected, it can lead to mispricing until that information is absorbed by market participants. The price discovery premium compensates participants for the risk and effort involved in trading and analyzing this information, as investors adjust their expectations and valuations based on new data. Ultimately, this process contributes to aligning prices more closely with the intrinsic value of assets, facilitating better market efficiency.

The other options, while they touch on relevant aspects of trading and market dynamics, do not encapsulate the primary role of the information or price discovery premium in enhancing price accuracy and efficiency in the market.