Price discovery and the influence of the ASX continuous disclosure regulation

Abstract

The market model–based event study has been adopted in the United States (US) to assess damages for non-disclosure matters (Kaufman and Wunderlich 2009). In Chapter 2 of this thesis, the market model–based event study is compared to other methods used in US courts for 31 breaches of the Australian Securities Exchange (ASX) Listing Rule 3.1, which requires immediate disclosure of market-sensitive information. The results in Chapter 2 highlight that the market model–based event study assesses loss distinct to other methods, and is subsequently appropriate for assessing the loss to shareholders caused by non-disclosures that breach the ASX continuous disclosure regulations. The bivariate-GARCH(1,1) price discovery model developed and tested with ASX data in Chapter 3 represents an extension of both the Chordia, Roll and Subrahmanyam (2005) and Hasbrouck (1991) models. This model allows the causal relationships between order flow and stock returns to be assessed, and for important aspects of the price discovery process to be measured. This study also introduces an active trader order flow variable for five-minute intervals using broker identification data from the ASX. The findings highlight that active trader order flow, including institutional order flow, has a positive causal relationship with stock returns. In addition, they show that active retail order flow has a negative causal relationship with stock returns. Uniquely including a consensus surprise and time series surprise variable in one model could offer a more complete measure of the earnings expectations for a stock held by the market (Ayers, Li and Yeung 2011, Guerard 1989, Lobo 1992). No long-term post-earnings announcement drift (PEAD) has been observed for positive surprises using a combined time series and consensus surprise model. Chapter 4 presents the view that a combined model could be appropriate for ASX Guidance Note 8 earnings surprise determinations.