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Evidence on the speed of convergence to market efficiency

Chordia, Tarun and Roll, Richard and Subrahmanyam, Avanidhar (2005) Evidence on the speed of convergence to market efficiency. Journal of Financial Economics, 76 (2). pp. 271-292. ISSN 0304-405X. doi:10.1016/j.jfineco.2004.06.004.

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Daily returns for stocks listed on the New York Exchange (NYSE) are not serially correlated while order imbalances on the same stocks are highly persistent. These empirical facts can be reconciled if sophisticated investors react to order imbalances within the trading day by undertaking enough countervailing trades to remove serial dependence over a daily horizon. How long does this actually take? The pattern of intra-day serial dependence reveals that it takes more than five minutes but less than sixty minutes.

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Additional Information:© 2005 Elsevier B.V. Received 10 November 2003, Revised 23 March 2004, Accepted 15 June 2004, Available online 5 February 2005. We thank an anonymous referee, Peter Bossaerts, Michael Brennan, Jeff Busse, Eugene Fama, Laura Frieder, Will Goetzmann, Clifton Green, Andrew Karolyi, Pete Kyle, Francis Longstaff, Elizabeth Odders-White, Mike Piwowar, Stephen Ross, Ross Valkanov, Kumar Venkataraman, Ingrid Werner, and seminar participants at Bocconi University, INSEAD, Princeton University, Southern Methodist University, Texas A&M University, Université de Paris Dauphine, Université de Toulouse, University of Texas, the New York Stock Exchange, Dimensional Fund Advisors, the 2002 Western Finance Association Conference, and the 2002 University of Maryland Accounting and Finance Conference for valuable comments and suggestions. We are grateful for financial support from the Q-Group.
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Subject Keywords:Serial dependence; Market efficiency; Speed of convergence
Issue or Number:2
Classification Code:JEL: G14
Record Number:CaltechAUTHORS:20190503-084316160
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Official Citation:Tarun Chordia, Richard Roll, Avanidhar Subrahmanyam, Evidence on the speed of convergence to market efficiency, Journal of Financial Economics, Volume 76, Issue 2, 2005, Pages 271-292, ISSN 0304-405X, (
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:95202
Deposited By: Tony Diaz
Deposited On:03 May 2019 16:03
Last Modified:16 Nov 2021 17:10

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