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An empirical analysis of the NZX's price query system

Article Information:

Title:

An empirical analysis of the NZX's price query system

Author(s):

Alastair Marsden, Russell Poskitt, Cherry Wang

Journal:

Pacific Accounting Review

Year:

2008

Volume:

20

Issue:

1

Page:

4 - 28


ISSN:

0114-0582


DOI:

10.1108/01140580810872825

Publisher:

Emerald Group Publishing Limited


Acknowledgements:

The authors thank the NZX for providing some of the documents used in this study. They also thank Chris Malone, participants at the 2006 Asian FA/FMA Finance Conference, 2007 New Zealand Finance Colloquium, 2007 AFAANZ Conference and University of Auckland workshop for helpful comments. In addition they thank two anonymous reviewers and the Editor (Markus Milne) for their comments that substantially improved this paper. All errors remain the authors' responsibility.

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Abstract:

Purpose – The purpose of this paper is to examine the proposition that unexplained price and volume movements detected by the New Zealand Exchange's (“NZX”) surveillance staff reflect speculative trading.

Design/methodology/approach – The paper examines a sample of 98 price queries issued by the NZX between 1996 and 2004 where the company responded with a “no news” announcement to the NZX query. The sample is partitioned between queries of price increases and queries of price decreases. A market model is employed to estimate abnormal returns over the event window period [-30, 30] where day 0 is the date the price query is issued.

Findings – The paper finds evidence of large abnormal returns in the immediate pre-query period but only a partial reversal in the post-query period following the “no news” announcements.

Research limitations/implications – The absence of a full reversal of the pre-query abnormal return is interpreted as evidence that prices are being set by informed traders rather than by uninformed or speculative traders. Further research is required to determine whether this reflects breaches of either the continuous disclosure regime or insider trading regulations.

Originality/value – The paper presents the first systematic analysis of the NZX's price query system. The empirical results show that price movements that generate price queries and subsequent “no news” announcements should not be dismissed as mere speculation.

Keywords:

Disclosure, Insider trading, Markets, Prices


Article Type:

Research paper


Article URL:

http://www.emeraldinsight.com/10.1108/01140580810872825

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