The Speed of Adjustment of Prices to Private Information: Empirical Tests

14 Pages Posted: 23 May 2006

See all articles by Ji-Chai Lin

Ji-Chai Lin

Hong Kong PolyU

Michael S. Rozeff

SUNY at Buffalo - Department of Financial & Managerial Economics

Abstract

We estimate speeds of adjustment of individual stock prices to private information using daily data. We use a model in which private information gives rise to return variance and private information decays linearly over time. We find that, on average about 85 to 88 percent of private information is incorporated into prices within one trading day, with variation depending upon the stock's trading volume and whether the stock is listed on an exchange. The findings support strong form market efficiency.

Keywords: strong form efficiency, private information, speed of adjustment

JEL Classification: G10, G14

Suggested Citation

Lin, Ji-Chai and Rozeff, Michael S., The Speed of Adjustment of Prices to Private Information: Empirical Tests. Journal of Financial Research, Vol. 18, No. 2, Summer 1995. Available at SSRN: https://ssrn.com/abstract=903541

Ji-Chai Lin (Contact Author)

Hong Kong PolyU ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon
China

Michael S. Rozeff

SUNY at Buffalo - Department of Financial & Managerial Economics ( email )

Buffalo, NY 14260
United States

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