The news-stock price relationship in New Zealand

This article examines the news-stock price hypothesis by assessing whether large 10-minute returns in the NZSX10 gross index are preceded or accompanied by information arrival that can explain the returns. It finds that there are explanations for only 29 of the 112 large 10-minute returns identified during the 21-month sample period. These explanations consist mainly of company specific and macroeconomic announcements. The lack of explanation for the majority of the large returns confirms the results of other studies conducted overseas and indicates that a more complex model of stock price determination than the efficient markets hypothesis may be required. Further investigation via regression analysis indicates that the NZSX10 index has a high correlation with overseas market returns, a source of information not considered during the first part of the paper. This result adds some strength to the news-stock price hypothesis but is not strong enough to save it entirely.UnpublishedBerry, Thomas D., and Keith M. Howe, 1994, Public information arrival, The Journal of Finance 49, 1331-1346. Cutler, David M., James M. Poterba, and Laurence H. Summers, 1989, What moves stock prices?, Journal of Portfolio Management 15, 4-12. Fair, Ray C., 2002, Events that shook the market, The Journal of Business 75, 713-731. Gujarati, Damodar N., 1995, Basic Econometrics 3ra Edition, McGraw-Hill, United States. Healy, Paul M., and Krishna G. Palepu, 1988, Earnings information conveyed by dividend initiations and ommisions, Journal of Financial Economics 21, 149-176. Jain, Prem P., 1988, Response of hourly stock prices and trading volume to economic news, The Journal of Business 61, 219-231. Mitchell, Mark L., and J. Harold Mulherin, 1994, The impact of public information on the stock market, The Journal of Finance 49, 923-950. Niederhoffer, Victor, 1971, The analysis of world events and stock prices, The Journal of Business 44, 193-219. Pearce, Douglas K., and V. Vance Roley, 1985, Stock prices and economic news, The Journal of Business 58, 49-67. Santa-Clara, Pedro and Rossen Valkanov, 2003, The presidential puzzle: Political cycles and the stock market, The Journal of Finance 58, 1841-1873