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Price Reversals, Bid-Ask Spreads, and Market Efficiency

Published online by Cambridge University Press:  06 April 2009

Allen B. Atkins  and
Edward A. Dyl
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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

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