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THE SPEED OF ADJUSTMENT OF PRICES TO PRIVATE INFORMATION: EMPIRICAL TESTS
Author(s) -
Lin JiChai,
Rozeff Michael S.
Publication year - 1995
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.1995.tb00558.x
Subject(s) - private information retrieval , stock (firearms) , economics , econometrics , variance (accounting) , stock exchange , stock market , monetary economics , financial economics , business , finance , statistics , mathematics , accounting , mechanical engineering , paleontology , horse , engineering , biology
Abstract We estimate speeds of adjustment of individual stock prices to private information using daily data. We use a model in which private information gives rise to return variance and private information decays linearly over time. We find that, on average, about 85 percent to 88 percent of private information is incorporated into prices within one trading day, with variation depending upon the stock's trading volume and whether the stock is listed on an exchange. The findings support strong form market efficiency.