Journal of Financial Intermediation Vol. 22 No. 2 2013

The speed of stock price discovery

Arieh Gavious^1,2; Haim Kedar-Levy

¹ Ben-Gurion University of the Negev · ² Ono Academic College

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.

DOI

10.1016/j.jfi.2012.09.003

Volume

22

Issue

2

Pages

245-258

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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