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Changes In The Stock Price Reaction Of Small Firms To Common Information

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  • Neil L. Fargher
  • Robert A. Weigand

Abstract

We hypothesize that changes in the technological and regulatory environment result in a more rapid response to marketwide information by small firms. We find that the correlations between small‐firm returns and lagged large‐firm returns decline over time, which suggests an increase in the efficiency of capital markets. Similar lead‐lag patterns are found in the returns of portfolios sorted by dollar trading volume. The price response of low‐volume stocks improves over time in much the same way as that of small‐capitalization stocks.

Suggested Citation

  • Neil L. Fargher & Robert A. Weigand, 1998. "Changes In The Stock Price Reaction Of Small Firms To Common Information," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 21(1), pages 105-121, March.
    • Handle: RePEc:bla:jfnres:v:21:y:1998:i:1:p:105-121
    DOI: 10.1111/j.1475-6803.1998.tb00272.x
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    Cited by:

    1. Palani-Rajan Kadapakkam & Timothy Krause & Yiuman Tse, 2015. "Exchange traded funds, size-based portfolios, and market efficiency," Review of Quantitative Finance and Accounting, Springer, vol. 45(1), pages 89-110, July.
    2. Carl R. Chen & Peter P. Lung & Nicholas S.P. Tay, 2005. "Information flow between the stock and option markets: Where do informed traders trade?," Review of Financial Economics, John Wiley & Sons, vol. 14(1), pages 1-23.
    3. Chang, Eric C. & McQueen, Grant R. & Pinegar, J. Michael, 1999. "Cross-autocorrelation in Asian stock markets," Pacific-Basin Finance Journal, Elsevier, vol. 7(5), pages 471-493, December.
    4. Kun Shin Im & Kevin E. Dow & Varun Grover, 2001. "Research Report: A Reexamination of IT Investment and the Market Value of the Firm—An Event Study Methodology," Information Systems Research, INFORMS, vol. 12(1), pages 103-117, March.
    5. Smales, Lee A., 2016. "Order aggressiveness of different broker-types in response to monetary policy news," Pacific-Basin Finance Journal, Elsevier, vol. 40(PB), pages 367-383.
    6. Chen, Carl R. & Lung, Peter P. & Tay, Nicholas S. P., 2005. "Information flow between the stock and option markets: Where do informed traders trade?," Review of Financial Economics, Elsevier, vol. 14(1), pages 1-23.
    7. Chaoshin Chiao & Ken Hung & Suresh Srivastava, 2004. "Testing lead-lag relations between portfolio returns under price-limits," Applied Economics Letters, Taylor & Francis Journals, vol. 11(5), pages 313-317.
    8. George Milunovich, 2004. "Modeling dependence structure in size-sorted portfolios: A Structural Multivariate GARCH Model," Econometric Society 2004 Australasian Meetings 55, Econometric Society.
    9. Andreas Gruener & Christian Finke, 2018. "Lead-Lag Relationships in International Stock Markets Revisited: Are They Exploitable?," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 9(1), pages 8-30, January.
    10. Palani-Rajan Kadapakkam & Timothy Krause & Yiuman Tse, 2013. "Exchange Traded Funds, Size-Based Portfolios, And Market Efficiency," Working Papers 0214fin, College of Business, University of Texas at San Antonio.
    11. Chiao, Chaoshin & Hung, Ken & Lee, Cheng F., 2004. "The price adjustment and lead-lag relations between stock returns: microstructure evidence from the Taiwan stock market," Journal of Empirical Finance, Elsevier, vol. 11(5), pages 709-731, December.
    12. Mohammed S. Khaled & Stephen P. Keef, 2014. "On the dynamics of international stock market efficiency," Cogent Economics & Finance, Taylor & Francis Journals, vol. 2(1), pages 1-11, December.

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