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Article

Velocity of Information in Efficient Markets:
A Theory of Market Value Change

Holly A. Bell
The Journal of Investing Fall 2012, 21 (3) 55-59; DOI: https://doi.org/10.3905/joi.2012.21.3.055
Holly A. Bell
is an assistant professor of general business at the Mat-Su College University of Alaska Anchorage in Palmer, AK.
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  • For correspondence: hollybell@me.com
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Abstract

This article argues that market prices in contemporary financial markets are driven by the value of information multiplied by a factor of the information’s velocity. These factors combined have the potential to explain several observed market phenomenon, including market volatility during economic crisis or recession, market bubbles, flash crashes, and short-run volatility combined with overreactions and over-corrections. The theory considers both micro and macroeconomic information, and questions the assumption that market prices always reflect intrinsic value alone. While microeconomic information is helpful in determining a security’s intrinsic value relative to other securities, macroeconomic information impacts the aggregate market. The result of our contemporary high-velocity information environment suggests our financial markets are becoming informationally hyperefficient and quasi-rational. This hyperefficiency has the potential to create short-run volatility on a scale not previously experienced.

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The Journal of Investing: 21 (3)
The Journal of Investing
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Fall 2012
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Velocity of Information in Efficient Markets:
A Theory of Market Value Change
Holly A. Bell
The Journal of Investing Aug 2012, 21 (3) 55-59; DOI: 10.3905/joi.2012.21.3.055

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Velocity of Information in Efficient Markets:
A Theory of Market Value Change
Holly A. Bell
The Journal of Investing Aug 2012, 21 (3) 55-59; DOI: 10.3905/joi.2012.21.3.055
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  • Article
    • Abstract
    • A THEORY OF MARKET VALUE CHANGE
    • MARKET VALUE OF INFORMATION
    • VELOCITY OF INFORMATION
    • IMPLICATIONS FOR MARKET VOLATILITY
    • MACROECONOMIC INFORMATION
    • CONCLUSIONS
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