The Adjustment of Stock Prices to New Information

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

28 Pages Posted: 8 Feb 2003 Last revised: 15 Feb 2011

Eugene F. Fama

University of Chicago - Finance

Lawrence Fisher

Rutgers University, Newark, School of Business-Newark, Department of Finance & Economics

Michael C. Jensen

SSRN; Harvard Business School; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Harvard University - Accounting & Control Unit

Richard Roll

California Institute of Technology

Date Written: February 15, 1969

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.

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

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: https://ssrn.com/abstract=321524 or http://dx.doi.org/10.2139/ssrn.321524

Eugene F. Fama

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
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Lawrence Fisher

Rutgers University, Newark, School of Business-Newark, Department of Finance & Economics ( email )

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Newark, NJ 07102
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Michael C. Jensen (Contact Author)

SSRN ( email )

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HOME PAGE: http://ssrn.com/author=9

Harvard Business School ( email )

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Negotiations, Organizations & Markets
Boston, MA 02163
United States
617-510-3363 (Phone)
305-675-3166 (Fax)

HOME PAGE: http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=ovr&facId=6484

National Bureau of Economic Research (NBER) ( email )

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European Corporate Governance Institute (ECGI) ( email )

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Belgium

Harvard University - Accounting & Control Unit ( email )

Soldiers Field
Boston, MA 02163
United States

Richard W. Roll

California Institute of Technology ( email )

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Mail Code: 228-77
Pasadena, CA 91125
United States
626-395-3890 (Phone)
310-836-3532 (Fax)

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