The speed of stock price discovery

Arieh Gavious; Haim Kedar-Levy

doi:10.1016/j.jfi.2012.09.003

The speed of stock price discovery

Arieh Gavious, Haim Kedar-Levy

Research output: Contribution to journal › Article › peer-review

6 Scopus citations

Abstract

We develop closed-form expressions for the path and speed of stock price discovery in a utility-based CAPM with wealth effects. Two investors with uniquely bounded risk-preferences always apply opposite portfolio rebalancing trades. These trades determine the intra-period path and speed of price discovery in a Walrasian, tâtonnement setup. While conditions for maximum speed exist, convergence is rapid over a wide range of endowments and preferences. Convergence to equilibrium is exponential, and its speed depends on endowments, risk-preferences, firm size, and market price for risk. Convergence is not guaranteed, and the conditions for divergence are specified.

Original language	English
Pages (from-to)	245-258
Number of pages	14
Journal	Journal of Financial Intermediation
Volume	22
Issue number	2
DOIs	https://doi.org/10.1016/j.jfi.2012.09.003
State	Published - 1 Jan 2013

Keywords

Asset pricing
Microstructure
Price discovery
Speed
Wealth effects

ASJC Scopus subject areas

Finance
Economics and Econometrics

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10.1016/j.jfi.2012.09.003

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abstract = "We develop closed-form expressions for the path and speed of stock price discovery in a utility-based CAPM with wealth effects. Two investors with uniquely bounded risk-preferences always apply opposite portfolio rebalancing trades. These trades determine the intra-period path and speed of price discovery in a Walrasian, t{\^a}tonnement setup. While conditions for maximum speed exist, convergence is rapid over a wide range of endowments and preferences. Convergence to equilibrium is exponential, and its speed depends on endowments, risk-preferences, firm size, and market price for risk. Convergence is not guaranteed, and the conditions for divergence are specified.",

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The speed of stock price discovery

Abstract

Keywords

ASJC Scopus subject areas

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