Patterns of disclosure and volatility effects in speculative industries: The case of small and mid-cap metals and mining entities on the Australian securities exchange
Phillip D. O'Shea Andrew C. Worthington David A. Griffiths Dionigi Gerace
Abstract
Purpose – There is conjecture that small and mid-cap companies in highly speculative industries use frequent and repetitive disclosure to promote price volatility and heighten market interest. Excessive disclosure could indicate instances of self-promotion or poor disclosure practices, and these habits could mislead investors. The purpose of this paper is to quantitatively investigate the impact of firm disclosure on price volatility in the Australian stock market. Design/methodology/approach – This paper considers the effect of information disclosure on the daily stock price volatility of 340 Metals & Mining industry entities listed on the Australian Securities Exchange over the period 2005-2007 using regression analysis. Findings – The results indicate the number of disclosures, the number of price and non-price sensitive disclosures and the number of disclosures by category has a significant influence on daily price volatility. Moreover, the volatility impact of disclosure is greater for small and mid-sized firms than large firms. Research limitations/implications – Price volatility is calculated using daily data; intra-day stock prices could provide measures that are more accurate. There is also no attempt to allow for asymmetry in disclosure; categorizing news as “good” or “bad” would allow better insights. Practical implications – There is support for the conjecture that disclosure could serve as a self-promotion tool through fabricated and repetitive announcements. Inadvertent poor disclosure practice could also result in excessive price volatility. Disclosure practice requires ongoing consideration by regulatory bodies. Originality/value – This analysis complements basic work by the Australian regulator to establish a quantitative link between disclosure practice and price volatility.
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