Speed of Price Adjustment in Indian Stock Market: A Paradox

Parthajit Kayal () and Sayanti Mondal ()
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Parthajit Kayal: Madras School of Economics (MSE)
Sayanti Mondal: Madras School of Economics (MSE)

Asia-Pacific Financial Markets, 2020, vol. 27, issue 4, No 1, 453-476

Abstract: Abstract This paper compares how fast the information and news flows are incorporated into the stock index and prices of its constituent stocks. We follow the empirical framework provided by Kayal and Maheswaran (J Emerg Mark Finance 30, S112-S135, 2018a) using the extreme value volatility estimators over rolling window multiple days’ horizon to compare the speed of price adjustment to the market information flows. This study uses the daily price data of Nifty index and the individual stock prices of the fifty constituent stocks of this index. We observe a paradox in the speed of price adjustment as the stock index exhibit continuous random walk while many of the constituent stocks exhibit excess volatility in the same time frame. We run our analysis for two different time periods. Both the time periods exhibit a similar finding.

Keywords: Extreme value volatility estimators; Speed of price adjustment; Random walk; Excess volatility (search for similar items in EconPapers)
JEL-codes: F31 G12 G14 G15 G17 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s10690-020-09303-7

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