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Deregulation, news releases, and price discovery

  • Manfen Chen

    ()

  • Rohan Christie-David

    ()

  • William Moore

    ()

Registered author(s):

    We hypothesize that the firm’s regulatory environment influences the sensitivity of its equity value to information. Using intraday stock price data of utilities operating in differing regulatory environments we test for systematic differences between the responsiveness of stock prices of utility firms operating in deregulated and regulated environments to a common information set. Our findings reveal sharp differences in responses, with those of utilities operating in deregulated environments the strongest, and the responses of utilities in highly regulated environments the weakest. While the evidence supports our hypothesis, in a broader sense, the evidence suggests that deregulation aids in the process of price discovery. We also find evidence that suggests that deregulation, per se, does not lead to higher stock price volatility. Copyright Springer Science+Business Media, LLC 2007

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    File URL: http://hdl.handle.net/10.1007/s11149-006-9017-5
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    Article provided by Springer in its journal Journal of Regulatory Economics.

    Volume (Year): 31 (2007)
    Issue (Month): 3 (June)
    Pages: 289-312

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    Handle: RePEc:kap:regeco:v:31:y:2007:i:3:p:289-312
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    1. Hausman, Jerry A. & Lo, Andrew W. & MacKinlay, A. Craig, 1992. "An ordered probit analysis of transaction stock prices," Journal of Financial Economics, Elsevier, vol. 31(3), pages 319-379, June.
    2. Douglas K. Pearce & V. Vance Roley, 1985. "Stock Prices and Economic News," NBER Working Papers 1296, National Bureau of Economic Research, Inc.
    3. Almeida, Alvaro & Goodhart, Charles & Payne, Richard, 1998. "The Effects of Macroeconomic News on High Frequency Exchange Rate Behavior," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 33(03), pages 383-408, September.
    4. Ederington, Louis H. & Lee, Jae Ha, 1995. "The Short-Run Dynamics of the Price Adjustment to New Information," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(01), pages 117-134, March.
    5. Blacconiere, Walter G. & Johnson, Marilyn F. & Johnson, Mark S., 2000. "Market valuation and deregulation of electric utilities," Journal of Accounting and Economics, Elsevier, vol. 29(2), pages 231-260, April.
    6. Ederington, Louis H & Lee, Jae Ha, 1993. " How Markets Process Information: News Releases and Volatility," Journal of Finance, American Finance Association, vol. 48(4), pages 1161-91, September.
    7. Lee, Charles M C & Ready, Mark J, 1991. " Inferring Trade Direction from Intraday Data," Journal of Finance, American Finance Association, vol. 46(2), pages 733-46, June.
    8. Kareken, John H, 1983. "The First Step in Bank Deregulation: What about the FDIC?," American Economic Review, American Economic Association, vol. 73(2), pages 198-203, May.
    9. Lawrence R. Glosten & Ravi Jagannathan & David E. Runkle, 1993. "On the relation between the expected value and the volatility of the nominal excess return on stocks," Staff Report 157, Federal Reserve Bank of Minneapolis.
    10. Amoako-Adu, Ben & Smith, Brian F., 1995. "The wealth effects of deregulation of Canadian financial institutions," Journal of Banking & Finance, Elsevier, vol. 19(7), pages 1211-1236, October.
    11. Green, Richard J, 1996. "Increasing Competition in the British Electricity Spot Market," Journal of Industrial Economics, Wiley Blackwell, vol. 44(2), pages 205-16, June.
    12. Kahn, Alfred E, 1988. "Surprises of Airline Deregulation," American Economic Review, American Economic Association, vol. 78(2), pages 316-22, May.
    13. M. T. Barlow, 2002. "A Diffusion Model For Electricity Prices," Mathematical Finance, Wiley Blackwell, vol. 12(4), pages 287-298.
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