Legislative Changes and Abnormal Trading Around Earnings Announcements: Evidence from New Zealand Market
41 Pages Posted: 27 Aug 2015
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: Suggested Citation