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Speed of Price Adjustment in Indian Stock Market: A Paradox

Author

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  • Parthajit Kayal

    (Madras School of Economics (MSE))

  • Sayanti Mondal

    (Madras School of Economics (MSE))

Abstract

This paper compares how fast the information and news flows are incorporated into the stock index and prices of its constituent stocks. We follow the empirical framework provided by Kayal and Maheswaran (J Emerg Mark Finance 30, S112-S135, 2018a) using the extreme value volatility estimators over rolling window multiple days’ horizon to compare the speed of price adjustment to the market information flows. This study uses the daily price data of Nifty index and the individual stock prices of the fifty constituent stocks of this index. We observe a paradox in the speed of price adjustment as the stock index exhibit continuous random walk while many of the constituent stocks exhibit excess volatility in the same time frame. We run our analysis for two different time periods. Both the time periods exhibit a similar finding.

Suggested Citation

  • Parthajit Kayal & Sayanti Mondal, 2020. "Speed of Price Adjustment in Indian Stock Market: A Paradox," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 27(4), pages 453-476, December.
    • Handle: RePEc:kap:apfinm:v:27:y:2020:i:4:d:10.1007_s10690-020-09303-7
    DOI: 10.1007/s10690-020-09303-7
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    Cited by:

    1. Amit K. Sinha, 2021. "The reliability of geometric Brownian motion forecasts of S&P500 index values," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 40(8), pages 1444-1462, December.

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    More about this item

    Keywords

    Extreme value volatility estimators; Speed of price adjustment; Random walk; Excess volatility;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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