Information Flow and Pricing Errors: A Unified Approach to Estimation and Testing

Posted: 13 Sep 2001 Last revised: 6 Jul 2010

See all articles by Chuan-Yang Hwang

Chuan-Yang Hwang

Nanyang Technological University (NTU)

Thomas J. George

University of Houston - Department of Finance

Date Written: July 6, 2010

Abstract

This study examines whether rates of information flow differ between trading and non-trading periods, and whether the variances of pricing errors differ at the open and close of trading. The approach improves on existing methods by allowing for correlation between pricing errors and information flow, and by conducting inferences at the individual security level. The daytime rate of information flow is about seven times the overnight rate, and the variances of pricing errors at the open are not different from those at the close of trading. This evidence differs from existing results based on return variance ratios.

Suggested Citation

Hwang, Chuan-Yang and George, Thomas J., Information Flow and Pricing Errors: A Unified Approach to Estimation and Testing (July 6, 2010). Review of Financial Studies, Vol. 14, pp. 979-1020, 2001. Available at SSRN: https://ssrn.com/abstract=273450

Chuan-Yang Hwang

Nanyang Technological University (NTU) ( email )

Singapore, 639798
Singapore
65-67905003 (Phone)
65-6791-3697 (Fax)

Thomas J. George (Contact Author)

University of Houston - Department of Finance ( email )

Houston, TX 77204
United States

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