Hostname: page-component-586b7cd67f-t7czq Total loading time: 0 Render date: 2024-11-23T03:06:03.075Z Has data issue: false hasContentIssue false
  • English
  • Français

The Short-Run Dynamics of the Price Adjustment to New Information

Published online by Cambridge University Press:  06 April 2009

Louis H. Ederington  and
Jae Ha Lee
Louis H. Ederington
Affiliation:
College of Business Administration, University of Oklahoma, Norman, OK 73019-0450.
Jae Ha Lee
Affiliation:
College of Business Administration, University of Oklahoma, Norman, OK 73019-0450.
Get access Rights & Permissions [Opens in a new window]

Abstract

We examine how prices in interest rate and foreign exchange futures markets adjust to the new information contained in scheduled macroeconomic news releases in the very short run. Using 10-second returns and tick-by-tick data, we find that prices adjust in a series of numerous small, but rapid, price changes that begin within 10 seconds of the news release and are basically completed within 40 seconds of the release. There is some evidence that prices overreact in the first 40 seconds but that this is corrected in the second or third minute after the release. While volatility tends to be higher than normal just before the news release, there is no evidence of information leakage. In our analysis, we correct for the biases created by bid-ask spreads and tick-by-tick data.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 30 , Issue 1 , March 1995 , pp. 117 - 134
Copyright
Copyright © School of Business Administration, University of Washington 1995

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

Atkins, A. B., and Dyl, E. A.. “Price Reversals, Bid-Ask Spreads, and Market Efficiency.” Journal of Financial and Quantitative Analysis, 25 (1990), 535–547.CrossRefGoogle Scholar
Barclay, M. J., and Litzenberger, R. H.. “Announcement Effects of New Equity Issues and the Use of Intraday Price Data.” Journal of Financial Economics, 21 (1988), 71–99.CrossRefGoogle Scholar
Brown, P.; Clinch, G.; and Foster, G.. Market Microstructure and Capital Market Information Content Research. American Accounting Association (1992).Google Scholar
Cho, B. C., and Frees, E. W.. “Estimating the Volatility of Discrete Stock Prices.” Journal of Finance, 43 (1988), 451–466.Google Scholar
Ederington, L. H., and Lee, J. H.. “How Markets Process Information: News Releases and Volatility.” Journal of Finance, 48 (1993), 1161–1191.Google Scholar
Ederington, L. H., and Lee, J. H.. “The Short-Run Dynamics of the Price Adjustment to New Information.” Working Paper, Univ. of Oklahoma (1994).CrossRefGoogle Scholar
Gottlieb, G., and Kalay, A.. “Implications of the Discreteness of Observed Stock Prices.” Journal of Finance, 40 (1985), 135–153.CrossRefGoogle Scholar
Harris, L. “Estimation of Stock Price Variances and Serial Covariances from Discrete Observations.” Journal of Financial and Quantitative Analysis, 25 (1990), 291–306.CrossRefGoogle Scholar
Jain, P. G. “Response of Hourly Stock Prices and Trading Volume to Economic News.” Journal of Business, 61 (1988), 219–231.Google Scholar
Jennings, R., and Starks, L.. “Information Content and the Speed of Stock Price Adjustment.” Journal of Accounting Research, 23 (1985), 336–350.Google Scholar
Kaul, G., and Nimalendran, N.. “Price Reversals: Bid-Ask Errors or Market Overreaction?” Journal of Financial Economics, 28 (1990), 67–93.CrossRefGoogle Scholar
Patell, J., and Wolfson, M.. “The Intraday Speed of Adjustment of Stock Prices to Earnings and Dividend Announcements.” Journal of Financial Economics, 13 (1984), 223–252.CrossRefGoogle Scholar
Roll, R. “A Simple Implicit Measure of the Effective Bid-Ask Spread in an Efficient Market.” Journal of Finance, 39 (1984), 1127–1139.Google Scholar
Woodruff, C. S., and Senchack, A. J. Jr., “Intraday Price-Volume Adjustments of NYSE Stocks to Unexpected Earnings.” Journal of Finance, 43 (1988), 467–491.Google Scholar