Price Reversals, Bid-Ask Spreads, and Market Efficiency
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.
Volume (Year): 25 (1990)
Issue (Month): 04 (December)
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