The R-square of the market model is a very popular measure of stock price efficiency. However, its interpretation is far from being unambiguous. Some scholars argue that the R-square is a direct measure of efficiency, others argue that the R-square is an indirect measure of efficiency. This paper contributes to the literature in two ways. First, we model the relationship between the market model R-square and the delay in the price discovery process and, second, we find that the correlation between R-square and delay is consistently negative. We conclude that the R-square is a direct measure of price efficiency.

Bramante, R., Petrella, G., Zappa, D., On the use of the market model R-square as a measure of stock price efficiency, <<REVIEW OF QUANTITATIVE FINANCE AND ACCOUNTING>>, 2015; 44 (2): 379-391. [doi:10.1007/s11156-013-0410-8] [http://hdl.handle.net/10807/67197]

On the use of the market model R-square as a measure of stock price efficiency

Bramante, Riccardo;Petrella, Giovanni;Zappa, Diego
2015

Abstract

The R-square of the market model is a very popular measure of stock price efficiency. However, its interpretation is far from being unambiguous. Some scholars argue that the R-square is a direct measure of efficiency, others argue that the R-square is an indirect measure of efficiency. This paper contributes to the literature in two ways. First, we model the relationship between the market model R-square and the delay in the price discovery process and, second, we find that the correlation between R-square and delay is consistently negative. We conclude that the R-square is a direct measure of price efficiency.
Inglese
Bramante, R., Petrella, G., Zappa, D., On the use of the market model R-square as a measure of stock price efficiency, <<REVIEW OF QUANTITATIVE FINANCE AND ACCOUNTING>>, 2015; 44 (2): 379-391. [doi:10.1007/s11156-013-0410-8] [http://hdl.handle.net/10807/67197]
File in questo prodotto:
Non ci sono file associati a questo prodotto.

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/10807/67197
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 7
  • ???jsp.display-item.citation.isi??? 5
social impact