This paper examines the impact of changes in market structure on market quality through security speed of adjustment coefficients, by employing ARMA model. The average result of cross-section of companies did not show any systematic pattern in terms of persistent underreaction or overreaction. The study did not find significant difference in the speed of adjustment of small and large capitalization stocks.

The process by which security prices adjust to the release of new information is an area of study which has received more attention in finance in recent times. The interest is whether prices adjust in a rapid and unbiased manner to the arrival of new information. An efficient market is the one in which information with economic content is expected to be quickly reflected in prices in an unbiased manner.

The efficiency of price discovery process of a security market can be assessed through the analysis of speed of adjustment process. The speed with which security prices adjust to their intrinsic values, to a large extent, depends on the structure of the market and the level of technology used. Due to the changes in market microstructure in terms of regulatory and procedural changes and improvement in the speed of information dissemination, processing of new information can be done much faster than before. Impact of changes in market structure on security speed of adjustment can be assessed by measuring whether there is underreaction or overreaction in security prices while adjusting to their intrinsic values when new information is released. Based on this measure, on the one hand, relative efficiency of different markets with different trading mechanisms can be compared, and on the other hand, changes in speed of adjustment of the same market can be compared to assess changes in market quality over the years. Thus, security speed of adjustment gives us the extent of underreaction or overreaction or full adjustment of prices to the arrival of new information.

Applied Finance Journal, National Stock Exchange, Small Capitalization Stocks, Price Discovery Process, Information Dissemination, Market Microstructure, Foreign Markets, Market Efficiency Theory, Price Adjustment Process, Bombay Stock Exchange, Market Capitalization.