Abstract

http://ssrn.com/abstract=321524
 
 

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The Adjustment of Stock Prices to New Information


Eugene F. Fama


University of Chicago - Finance

Lawrence Fisher


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)

Richard Roll


California Institute of Technology

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

Abstract:     
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 decreases

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Date posted: February 8, 2003 ; Last revised: February 15, 2011

Suggested Citation

Fama, Eugene F. and Fisher, Lawrence and Jensen, Michael C. and Roll, Richard, The Adjustment of Stock Prices to New Information (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. Available at SSRN: http://ssrn.com/abstract=321524 or http://dx.doi.org/10.2139/ssrn.321524

Contact Information

Eugene F. Fama
University of Chicago - Finance ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7282 (Phone)
773-702-9937 (Fax)
Lawrence Fisher
Rutgers University, Newark, School of Business-Newark, Department of Finance & Economics ( email )
111 Washington Avenue
Newark, NJ 07102
United States
Michael C. Jensen (Contact Author)
Harvard Business School ( email )
Soldiers Field
Negotiations, Organizations & Markets
Boston, MA 02163
United States
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305-675-3166 (Fax)
HOME PAGE: http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=ovr&facId=6484
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National Bureau of Economic Research (NBER) ( email )
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European Corporate Governance Institute (ECGI) ( email )
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Belgium
Richard W. Roll
California Institute of Technology ( email )
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Pasadena, CA 91125
United States
626-395-3890 (Phone)
310-836-3532 (Fax)
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