On the Timeliness of Price Discovery

27 Pages Posted: 21 Oct 2006

See all articles by Wendy Beekes

Wendy Beekes

Lancaster University - Department of Accounting and Finance

Philip R. Brown

UWA Business School, M250; Financial Research Network (FIRN)

Date Written: August 2007

Abstract

Price discovery is the process whereby value-relevant, private information becomes impounded or reflected in a stock's publicly-observable market price. The timeliness of price discovery refers to how quickly that process takes effect.

There is no reason to believe either that all private information is discovered equally quickly or that price discovery is equally speedy for all firms. The latter observation suggests it would be worthwhile knowing why the timeliness of price discovery differs across firms, even the more so in an environment where all listed companies by law must disclose most material price-sensitive information as soon as they become aware of it. The other observation, that not all private information is discovered equally quickly, implies we should focus on a material, periodic event when we compare timeliness across firms. A good candidate is the announcement of the company's annual results, since for many years is has been known that annual earnings alone captures at least half the value-relevant information released by the average firm over the 12 months leading up to this date.

We use various approaches to explore measures of timeliness and what they can tell us. We review a number of studies that have considered various aspects of timeliness in different countries and extend and contrast their findings. We also examine the relationship between the timeliness of price discovery and analogous measures based upon firms' formal disclosures to the share market and upon analysts' consensus earnings forecasts. Finally, we report on an issue of major concern to regulators and market operators, namely the influence of corporate governance on the timeliness of price discovery.

Keywords: information timeliness, price discovery

JEL Classification: M41, M45, G12, G19, G34, G38, D82

Suggested Citation

Beekes, Wendy and Brown, Philip R., On the Timeliness of Price Discovery (August 2007). Available at SSRN: https://ssrn.com/abstract=938982 or http://dx.doi.org/10.2139/ssrn.938982

Wendy Beekes (Contact Author)

Lancaster University - Department of Accounting and Finance ( email )

Lancaster LA1 4YX
United Kingdom
++44 (0)1524 593623 (Phone)

Philip R. Brown

UWA Business School, M250 ( email )

Crawley, Western Australia 6009
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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