Acknowledgements: The authors acknowledge constructive criticism and suggestions from the editor and two anonymous referees of the journal. This paper was presented at the India Finance Conference, 2011 at the Indian Institute of Management, Bangalore, December 21st to 23rd in Bangalore, Karnataka, India.
The Speed of Stock Price Adjustments to Market Wide Information in India*
Article first published online: 18 OCT 2012
© 2012 Korean Securities Association
Asia-Pacific Journal of Financial Studies
Volume 41, Issue 5, pages 541–562, October 2012
How to Cite
Prasanna, K. and Menon, A. (2012), The Speed of Stock Price Adjustments to Market Wide Information in India. Asia-Pacific Journal of Financial Studies, 41: 541–562. doi: 10.1111/j.2041-6156.2012.01085.x
- Issue published online: 18 OCT 2012
- Article first published online: 18 OCT 2012
- Received 20 December 2011; Accepted 14 May 2012
- Speed of information adjustment;
- Market wide news;
The speed of price adjustment hypothesis suggests that some stocks tend to adjust faster to market wide information than others. This paper uses the speed of price adjustment hypothesis to identify firm level characteristics that determine the information assimilation pace of individual stocks in the Indian markets. The research sample consists of 64 stocks with yearly data for 10 years, a total of 640 firm-year observations. Panel data analysis was used to study the effects of firm specific characteristics upon the speed of adjustment proxy DELAY. It was found that parameters such as firm size, trading volume and turnover had a significant influence on information assimilation. Large firms, as well as those firms with high turnover and trading volume, assimilated the market wide news faster, when compared with others. Stocks with high firm value and share price volatility were also found to adjust to market information faster. Firms with higher financial leverage take a longer time for price adjustments. The stock price adjustments were found to be much slower during the world financial crisis period of 2008–2010. While firm size remains a significant feature even during the crisis period, the volume and value traded were not found to be influencing factors for stock price movements during this time.