Hostname: page-component-5c6d5d7d68-sv6ng Total loading time: 0 Render date: 2024-08-16T10:00:47.624Z Has data issue: false hasContentIssue false
  • English
  • Français

Price Reversals, Bid-Ask Spreads, and Market Efficiency

Published online by Cambridge University Press:  06 April 2009

Allen B. Atkins  and
Edward A. Dyl
Get access Rights & Permissions [Opens in a new window]

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.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 25 , Issue 4 , December 1990 , pp. 535 - 547
Copyright
Copyright © School of Business Administration, University of Washington 1990

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Arbel, A., and Jaggi, B.. “Market Information Assimilation Related to Extreme Daily Price Jumps.” Financial Analysis Journal, 38 (11–12 1982), 60–66.CrossRefGoogle Scholar
Bernstein, P. L. “Discussion.” Journal of Finance, 40 (07 1985), 806–807.Google Scholar
Brown, K. C, and Harlow, W. Van. “Market Overreaction: Magnitude and Intensity.” Journal of Portfolio Management, 14 (Winter 1988), 6–13.CrossRefGoogle Scholar
Brown, K. C.; Harlow, W. Van; and Tinic, S. M.. “Risk Aversion, Uncertain Information, and Market Efficiency.” Journal of Financial Economics, 22 (12 1988), 355–385.CrossRefGoogle Scholar
Brown, S. J., and Warner, J. B.. “Measuring Security Price Performance.” Journal of Financial Economics, 8 (09 1980), 205–257.CrossRefGoogle Scholar
Brown, S. J., and Warner, J. B.. “Using Daily Stock Returns: The Case of Event Studies.” Journal of Financial Economics, 14 (03 1985), 3–32.CrossRefGoogle Scholar
Chan, K. C. “On the Return of the Contrarian Investment Strategy.” Journal of Business, 61 (04 1988), 147–163.CrossRefGoogle Scholar
De Bondt, W. F. M., and Thaler, R. H.. “Does the Stock Market Overreact?” Journal of Finance, 40 (07 1985), 793–805.CrossRefGoogle Scholar
De Bondt, W. F. M., and Thaler, R. H.. “Further Evidence on Investor Overreaction and Stock Market Seasonally.” Journal of Finance, 42 (07 1987), 557–581.CrossRefGoogle Scholar
De Bondt, W. F. M., and Thaler, R. H.. “A Mean Reverting Walk down Wall Street.” Journal of Economic Perspectives, 3 (Winter 1989), 189–202.CrossRefGoogle Scholar
French, K. “Stock Returns and the Weekend Effect.” Journal of Financial Economics, 8 (03 1980), 55–69.CrossRefGoogle Scholar
Gibbons, M., and Hess, P.. “Day of the Week Effects and Asset Returns.” Journal of Business, 54 (10 1981), 579–596.CrossRefGoogle Scholar
Howe, J. S. “Evidence on Stock Market Overreaction.” Financial Analysts Journal, 42 (07–08 1986), 74–77.CrossRefGoogle Scholar
Jones, S. L. “Reaction to the Overreaction Hypothesis.” Journal of Financial Economics, 25 (11 1989), 75–97.Google Scholar
Keim, D. B. “Trading Patterns, Bid-Ask Spreads and Estimated Security Returns: The Case of Common Stocks at Calendar Turning Points.” Unpubl. paper (1989).CrossRefGoogle Scholar
Masulis, R. W. “The Effects of Capital Structure Change on Security Prices: A Study of Exchange Offers.” Journal of Financial Economics, 8 (06 1980), 139–178.CrossRefGoogle Scholar
Rozeff, M. S., and Kinney, W. R. Jr., “Capital Market Seasonality: The Case of Stock Returns.” Journal of Financial Economics, 3 (10 1976), 379–402.CrossRefGoogle Scholar
Schultz, P. “Transactions Costs and the Small Firm Effect: A Comment.” Journal of Financial Economics, 12 (06 1983), 81–88.CrossRefGoogle Scholar
Schwartz, R. A.Equity Markets: Structure, Trading, and Performance. New York: Harper and Row (1988).Google Scholar
Stoll, H. R., and Whaley, R. E.. “Transactions Costs and the Small Firm Effect.” Journal of Financial Economics, 12 (06 1983), 57–79.CrossRefGoogle Scholar
Zarowin, P. “Size, Seasonality and Stock Market Overreaction.” Journal of Financial and Quantitative Analysis, 25 (03 1990), 113–125.CrossRefGoogle Scholar
Zarowin, P. “Short-run Market Overreaction: Size and Seasonality Effects.” Journal of Portfolio Management, 15 (Spring 1989), 26–29.CrossRefGoogle Scholar