The Speed of Stock Price Discovery

31 Pages Posted: 10 Jul 2009 Last revised: 9 Feb 2018

See all articles by Arieh Gavious

Arieh Gavious

Ono Academic College; Ben-Gurion University

Haim Kedar-Levy

Ben Gurion University of the Negev - Guilford Glazer Faculty of Business and Management

Date Written: 2013

Abstract

We develop closed-form expressions for the path and speed of stock price ‎discovery in a utility-based CAPM with wealth effects. Two investors with ‎uniquely bounded risk-preferences always apply opposite portfolio rebalancing ‎trades. These trades determine the intra-period path and speed of price discovery ‎in a Walrasian, tâtonnement setup. While conditions for maximum speed exist, ‎convergence is rapid over a wide range of endowments and preferences. ‎Convergence to equilibrium is exponential, and its speed depends on ‎endowments, risk-preferences, firm size, and market price for risk. Convergence is ‎not guaranteed, and the conditions for divergence are specified. ‎

Keywords: speed, price discovery, convergence, microstructure, asset pricing

JEL Classification: G12

Suggested Citation

Gavious, Arieh and Kedar-Levy, Haim, The Speed of Stock Price Discovery (2013). Journal of Financial Intermediation, 22, 2, 245-258, Available at SSRN: https://ssrn.com/abstract=1358881 or http://dx.doi.org/10.2139/ssrn.1358881

Arieh Gavious

Ono Academic College ( email )

Kyriat Ono
Israel

Ben-Gurion University ( email )

Beer-Sheva 84105
Israel

Haim Kedar-Levy (Contact Author)

Ben Gurion University of the Negev - Guilford Glazer Faculty of Business and Management ( email )

P.O. Box 653
Beer-Sheva 84105
Israel
(972) 8 6472569 (Phone)
(972) 8 6477697 (Fax)

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