The Adjustment of Stock Prices to New Information
Eugene F. Fama
University of Chicago - Finance
Rutgers University, Newark, School of Business-Newark, Department of Finance & Economics
Michael C. Jensen
Harvard Business School; Social Science Electronic Publishing (SSEP), Inc.; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)
University of California, Los Angeles (UCLA) - Finance Area
February 15, 1969
International Economic Review, Vol. 10, February 1969
STRATEGIC ISSUES IN FINANCE, Keith Wand, ed., Butterworth Heinemann, 1993
INVESTMENT MANAGEMENT: SOME READINGS, J. Lorie, R. Brealey, eds., Praeger Publishers, 1972
There is an impressive body of empirical evidence which indicates that successive price changes in individual common stocks are very nearly independent. Recent papers by Mandelbrot and Samuelson show rigorously that independence of successive price changes is consistent with an efficient market, i.e., a market that adjusts rapidly to new information.
It is important to note, however, that in the empirical work to date the usual procedure has been to infer market efficiency from the observed independence of successive price changes. There has been very little actual testing of the speed of adjustment of prices to specific kinds of new information. The prime concern of this paper is to examine the process by which common stock prices adjust to the information (if any) that is implicit in a stock split. In doing so we propose a new event study methodology for measuring the effects of actions and events on security prices.
Number of Pages in PDF File: 28
Keywords: efficient markets, effect of information on stock prices, stock splits, dividend increases, market conditions, rate of return, effect of split(s) on return(s), residuals, average dividends, dividend increases, and dividend decreasesAccepted Paper Series
Date posted: February 8, 2003 ; Last revised: February 15, 2011
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo2 in 0.500 seconds