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An empirical analysis of the NZX's price query system

An empirical analysis of the NZX's price query system 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Pacific Accounting Review Emerald Publishing

An empirical analysis of the NZX's price query system

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References (27)

Publisher
Emerald Publishing
Copyright
Copyright © 2008 Emerald Group Publishing Limited. All rights reserved.
ISSN
0114-0582
DOI
10.1108/01140580810872825
Publisher site
See Article on Publisher Site

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.

Journal

Pacific Accounting Review – Emerald Publishing

Published: May 16, 2008

Keywords: Markets; Disclosure; Prices; Insider trading

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