Inadequate stock price reactions; Evidence on Prague Stock Exchange



Year of publication 2020
Type Article in Periodical
Magazine / Source Czech Journal of Economics and Finance
MU Faculty or unit

Faculty of Economics and Administration

Keywords Market efficiency; price jumps; swap variance; under-reaction
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Description The paper examines how effectively a price-generating information is incorporated into the stock price. The research is dedicated to the fourteen main stocks on the Prague Stock Exchange. The investigated period was November 2012 - December 2018. The research applies an innovative way for identifying significant price related information, a so-called swap variance test. After the jumps are identified, the price response is analysed. The results included both positive and negative jumps, where the positive ones were almost three times more frequent. A further exploration confirmed the existence of an under-reaction in the case of positive news and an overreaction in the case of negative events. The evidence of abnormal returns identified the presence of an information inefficiency on the investigated market.
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