Efficiency of financial production process and its dependence on price anchors: Evidence from India

Abstract

This paper measures the degree to which disclosed annual financial information assimilates into stock prices through the financial production process (FPP). Since it is established that price anchors impact investor trading decisions, the effect of proximity to chosen price anchors and the historical high and low prices on FPP efficiency is analysed for 611 Indian firms across 11 industries. Results show that a significant number of stocks are FPP inefficient, and the FPP efficiency is mean-reverting. Further, FPP efficiencies depend on proximity to price anchors, implying that FPP efficiency is a proxy measure of behavioural bias in stock prices.

Keywords

• Indian stocks
• Data envelopment analysis
• Price discovery
• Price anchors
• Historical highs and lows
• Behavioural bias