Trading Prior to Price Sensitive Announcements

27 Pages Posted: 27 Aug 2009 Last revised: 24 Nov 2009

See all articles by Michael J. Aitken

Michael J. Aitken

Macquarie Graduate School of Management

Amy Kwan

The University of New South Wales

Thomas H. McInish

University of Memphis - Fogelman College of Business and Economics

Date Written: November 5, 2009

Abstract

We develop and test a proxy for the level of informed trading based on trading prior to Price Sensitive Announcements (PSAs). Significant price movements prior to the release of PSAs trigger an Informed Trading Alert (ITA). We calculate our Informed Trading Proxy (ITP), which is the ratio of ITAs to PSAs, for the Australian Securities Exchange (ASX) and three Chinese exchanges. From 2003 to 2008, we see almost a tripling in the incidence of informed trading prior to the release of PSAs on the ASX. Using ITP as a proxy for market integrity these results suggest that the integrity of the ASX market has reduced over the period 2003 to 2008. Notwithstanding, the integrity of the ASX marketplace appears higher relative to that of three Chinese peer exchanges.

Keywords: Market Quality, Market Integrity, Informed Trading, ASX, Chinese Exchanges, Regulation

JEL Classification: G15

Suggested Citation

Aitken, Michael J. and Kwan, Amy and McInish, Thomas H., Trading Prior to Price Sensitive Announcements (November 5, 2009). 22nd Australasian Finance and Banking Conference 2009. Available at SSRN: https://ssrn.com/abstract=1460385 or http://dx.doi.org/10.2139/ssrn.1460385

Michael J. Aitken

Macquarie Graduate School of Management ( email )

North Ryde
Sydney, New South Wales 2109
Australia

Amy Kwan (Contact Author)

The University of New South Wales ( email )

Sydney, NSW 2052
Australia
+61280884259 (Phone)

Thomas H. McInish

University of Memphis - Fogelman College of Business and Economics ( email )

Memphis, TN 38152
United States
901-678-4662 (Phone)
901-678-3006 (Fax)

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