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

Abstract

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. Copyright 2007 The Author Journal compilation (c) 2007 Blackwell Publishing Ltd.

Continuous disclosure compliance: does corporate governance matter?

“…The price queries regime can be seen as a precursor to possible disclosure breaches (Poskitt, 2005;Marsden et al, 2008;Di-Lernia and Aspris, 2011). Whilst price queries have been studied in the context of market reaction to firms' responses (Gong, 2007;Sault, 2011, 2013), the price queries regime has not been substantially examined in the context of firms' continuous disclosure compliance quality. We further investigate whether prior price queries are associated with firms' continuous disclosure compliance quality and whether corporate governance has any impact on this association.…”

The Intraday Pattern of Information Asymmetry, Spread, and Depth: Evidence from the NYSE

“…Furthermore, studies show that the spread is positively related to the amount of information coming to the market (McInish and Wood ; Gregoriou et al. ; Gong ).…”

“…Information asymmetry between informed and uninformed traders is a positive function of the rate of information arrival (McInish and Wood ; Gregoriou et al. ; Gong ). As information arrives randomly over time, the pattern of information asymmetry associated with a single security or with the market should exhibit random changes over time.…”

“…The theoretical arguments of Glosten and Milgrom (), Huang and Stoll (), Gregoriou et al. (), and Gong () propose that the spread is positively related to information asymmetry. Lee et al.…”

A review of research on regulation changes in the Asia‐Pacific region

“…The findings demonstrate positive wealth and volume effects with query announcements, and unexplained abnormal returns in the pre-announcement period fail to reverse in the event a firm announces the absence of information to explain the pre-query activity. The absence of reversal is consistent with the New Zealand evidence of Marsden et al (2008), but inconsistent with Australian results in Gong (2007).…”