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Price Reversals, Bid-Ask Spreads, and Market Efficiency

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  • Atkins, Allen B.
  • Dyl, Edward A.

Abstract

We examine the behavior of common stock prices after a large change in price occurs during a single trading day and find evidence that the stock market appears to have overreacted, especially in the case of price declines; however, the magnitude of the overreaction is small compared to the bid-ask spreads observed for the individual stocks in the sample. We interpret this finding as being consistent with a market that is efficient after transactions costs are considered.

Suggested Citation

  • Atkins, Allen B. & Dyl, Edward A., 1990. "Price Reversals, Bid-Ask Spreads, and Market Efficiency," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 25(04), pages 535-547, December.
  • Handle: RePEc:cup:jfinqa:v:25:y:1990:i:04:p:535-547_00
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