The effect of financial friction on the speed of stock price convergence

Subject Areas : Financial engineering

Sepideh  Rajizadeh ¹ (Department of Accounting, Faculty of Management, Economics and Accounting, Payame Noor University, Tehran, Iran)
Amirhossein  Taebi Noghondari ² (Department of Accounting, Kerman Branch, Islamic Azad University, Kerman, Iran)
Hadis  Zeinali ³ (Department of Accounting, Kerman Branch, Islamic Azad University, Kerman, Iran)

Received: 2020-08-09 Accepted : 2020-10-18 Published : 2021-06-22

Keywords: Risk, Financial friction, stock price convergence rate, profit acceleration,

Abstract :

Any factor that reduces the positive effects of rising stock prices creates a kind of financial friction for stocks. The role of financial friction in justifying the slowdown in stock price convergence is significant because it interferes with financial transactions and stock pricing, and investors are unable to completely reduce firm-specific risk through diversification if there is financial friction. The above issue is one of the new issues in the capital market that due to the novelty of the areas of financial friction and the speed of stock price convergence, little research has been done nationally and internationally; Less attention has been paid to this dimension of research variables. Therefore, the purpose of this study is to investigate the effect of financial friction on the speed of stock price convergence. The data of this study consisting of 89 companies listed on the Tehran Stock Exchange during the years 2010 to 2019 were reviewed. To test the research hypotheses, the generalized least squares regression model has been used. The results of the study indicate that there is a negative and significant relationship between financial friction and the speed of stock price convergence.