Price Reversals, Bid-Ask Spreads, and Market Efficiency

Allen B. Atkins and Edward A. Dyl

Journal of Financial and Quantitative Analysis, 1990, vol. 25, issue 4, 535-547

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.

Date: 1990
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