Patrik Säfvenblad: Dept. of Finance, Stockholm School of Economics, Postal: P.O. Box 6501, S-113 83 Stockholm, Sweden
Abstract: This paper investigates the properties of the Damodaran (Journal of Finance, 1993) estimator of price adjustment. It is concluded that strong bias and low precision of the Damodaran estimator renders it useless for empirical work, even when the available sample size is very large. As an alternative, a GMM-based estimator is derived. Its properties are significantly better than those of the Damodaran estimator. However, for empirical applications it is still preferable to estimate price adjustment speeds using concurrent information from related time series.
11 pages, November 21, 1997
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