SPEED OF ADJUSTMENT, VOLATILITY AND NOISE

This book contains three essays that explore the speed of adjustment, volatility and noise in the Indonesia Stock Exchange. The first essay found that the significant factor determining the noise in the speed of adjustment is bid-ask fluctuations. Further, the adverse selection cost is found to be a significant component determining the speed of adjustment level in the Indonesia Stock Exchange. The second essay analyses the exact time of adjustment at intraday frequency from 2000 to 2007. Both first and second moment estimation of the speed of adjustment provide consistent result of 30 minute adjustment period. The third essay analyses the second moment of continuously compounded returns from 2000 to 2007. Using the realized variance, the optimal frequency to estimate the efficient variance, on average, is nine minutes. Further, the variance ratio of daily efficient variance to daily open-to-close reveals significant private information underlying price process in the Indonesia Stock Exchange.