Effectiveness and Market Reaction to the Stock Exchange's Inquiry in Australia

45 Pages Posted: 19 Nov 2006

See all articles by Ning Gong

Ning Gong

Deakin University; Financial Research Network (FIRN)

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This paper examines a unique stock market monitoring program used by the Australian Stock Exchange (ASX). When the ASX observes unusual share price or trading volume changes of a listed company, it sends a letter demanding an explanation. Companies need to respond publicly to several stylized questions. Such public communications between the stock exchange and listed companies contain information. This paper documents how companies respond to the ASX inquiry and how the market reacts to the replies. It is found that some companies do release new information to the market when asked. After the firm's reply is posted, the average trading volume and the bid-ask spread are reduced, and in most cases, the share price is also stabilized with the following two exceptions: (1) The price will continue to rally on average if the company releases only partial information when questioned after a significant price jump; (2) The downward price trend will be reversed if the company states that no new information could explain the decline. Furthermore, there are statistically significant, positive abnormal returns for the first five trading days, which are not conditional upon the replies firms give to the ASX inquiries.

Keywords: stock market monitoring, information disclosure, liquidity

JEL Classification: M41, M45, G14, G18

Suggested Citation

Gong, Ning, Effectiveness and Market Reaction to the Stock Exchange's Inquiry in Australia. Journal of Business Finance & Accounting, Forthcoming. Available at SSRN: https://ssrn.com/abstract=945271

Ning Gong (Contact Author)

Deakin University ( email )

Department of Finance
Faculty of Business and Law
Burwood, Victoria 3125
+61 3 9246 8492 (Phone)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane

HOME PAGE: http://www.firn.org.au

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