Intraday Speed of Price Adjustment in the Jakarta Stock Exchange

Abstract

High frequency study at individual level in the Jakarta Stock Exchange is conducted in this research to reveal the dynamics at intraday level. Several apparent patterns emerge from analyzing the relation among the speed of adjustment coefficients, noise, and noise variance. It is found that the noise and noise variance are at a low level when the speed of adjustment coefficients achieves a fair level. The speed of adjustment coefficients, both at market and individual level show a periodic adjustment pattern at a daily interval. This justifies the importance of studying the dynamics of the price discovery as estimated in the speed of adjustment coefficient. Another important finding is that there is a positive relationship between the uncertainty of asset fundamental values and the corresponding bid-ask spreads. This reflects higher uncertainty about the fundamental value of the asset increases the risk of transacting with traders with superior information.