Required Line of Business Reporting and Share Price Accuracy

Abstract

The adjustment of prices after the arrival of new information is one of the most debated issues in finance. We use post-IPO market to examine this subject. The unique setting of immediate aftermarket allows us to assess the speed of price adjustment after the trading has just begun as investors possess little information about stock return properties. They are, therefore, likely to misinterpret firm-specific information in the immediate aftermarket. As time since IPO elapses, investors accumulate more information, and reaction to new events becomes more accurate. We show that during the first trading year, the speed of price adjustment increases by 14% in the first year of trading for both public and private events, and by as much as 26% for public events. We conclude that the incorporation of new information into stock prices becomes faster as stocks season.

Keywords: law and finance, securities law

JEL Classification: G14