The speed of stock price discovery

Arieh Gavious () and Haim Kedar-Levy

Journal of Financial Intermediation, 2013, vol. 22, issue 2, 245-258

Abstract: We develop closed-form expressions for the path and speed of stock price discovery in a utility-based CAPM with wealth effects. Two investors with uniquely bounded risk-preferences always apply opposite portfolio rebalancing trades. These trades determine the intra-period path and speed of price discovery in a Walrasian, tâtonnement setup. While conditions for maximum speed exist, convergence is rapid over a wide range of endowments and preferences. Convergence to equilibrium is exponential, and its speed depends on endowments, risk-preferences, firm size, and market price for risk. Convergence is not guaranteed, and the conditions for divergence are specified.

Keywords: Speed; Price discovery; Microstructure; Asset pricing; Wealth effects (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:22:y:2013:i:2:p:245-258

DOI: 10.1016/j.jfi.2012.09.003

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