Legislative Changes and Abnormal Trading Around Earnings Announcements: Evidence from New Zealand Market

41 Pages Posted: 27 Aug 2015

See all articles by Nick Barry

Nick Barry

Deloitte New Zealand

Hai Lin

Victoria University of Wellington - Te Herenga Waka - School of Economics & Finance

Date Written: August 26, 2015

Abstract

Using semi-annual earnings announcement data in New Zealand from 1998 to 2014, we find evidence of significant pre-announcement price run-ups prior to "good news" announcements, which is a prima facie evidence of abnormal trading. We then investigate the effectiveness of changing regulations. Our results suggest that tightening disclosure requirements and using a centralized regulatory authority successfully reduced abnormal trading activity, however introducing criminal offense to insider trading had no effect on reducing such activity, likely due to the increased burden of proof needed in prosecution. Further analysis using high frequency data also supports this finding. These findings have meaningful policy implications and raise important questions on financial markets regulation.

Keywords: Abnormal trading; legislative change; earnings announcement; probability of informed trading

JEL Classification: G12; G14

Suggested Citation

Barry, Nick and Lin, Hai, Legislative Changes and Abnormal Trading Around Earnings Announcements: Evidence from New Zealand Market (August 26, 2015). Available at SSRN: https://ssrn.com/abstract=2651078 or http://dx.doi.org/10.2139/ssrn.2651078

Nick Barry

Deloitte New Zealand ( email )

New Zealand

Hai Lin (Contact Author)

Victoria University of Wellington - Te Herenga Waka - School of Economics & Finance ( email )

P.O. Box 600
Wellington 6001
New Zealand

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