The news-stock price relationship in New Zealand

Abstract

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.