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JOURNAL OF ACCOUNTING AND FINANCE
Equity Market Reaction to Sharp Price Changes: Evidence from India
Author(s): Rasoul Rezvanian, Narendar V. Rao, Emmanuel Nyadroh
Citation: Rasoul Rezvanian, Narendar V. Rao, Emmanuel Nyadroh, (2012) "Equity Market Reaction to Sharp Price Changes: Evidence from India," Vol. 12, Iss. 2, pp. 142 - 162
Article Type: Research paper
Publisher: North American Business Press
Abstract:
One approach to examining the weak form of market efficiency is to test for investors’ overreaction to large price changes. In this line of research, we examine investors’ reactions to sharp price changes in the Bombay and National Stock Exchanges of India. We apply three thresholds of large daily price changes. Using daily data from January 2, 1995 through October 26, 2009, we examine investors’ behavior within thirty days after the arrival of unexpected favorable and unfavorable news. Results: (a) the arrival of unexpected news causes sharp price changes and introduces a price shock, which increases market volatility. (b) The subsequent price adjustments have an upward corrective pattern. These results are consistent with the Uncertainty Information Hypothesis introduced by Brown, Harlow, and Tinic (1988, 1993).
