Speed of information assimilation in indian stock indices

The waves of economic reforms have resulted in the exponential growth in the international trade and business over the past two decades. As a result, the stock markets are integrated thus capturing the news from the domestic as well as global markets. The speed and efficiency with which the markets incorporate this information into the prices is one of the interesting domains of research in the finance literature. Understanding the behaviour of stock price patterns are of immense use to investors and portfolio managers in asset allocation strategies and diversification. The objective of this study is to measure the speed of information assimilation in two broad market indices in the Indian equity market viz., Sensex and Nifty over a period of nine years that span from January 2005 to December 2013. The sample is sub-divided into three periods to unfold the speed of information adjustment in pre-crisis period, crisis period and post financial crisis period using the Generalized Auto Regressive Conditional Heteroskedasticity (GARCH) Approach. The study found that the market placed more relevance to existing information than the new information across the economic cycles. Better assimilation of existing information was found in the stock prices. The volatility persistence was found to be very high during the crisis period.