Effectiveness and Market Reaction to the Stock Exchange's Inquiry in Australia


  • Ning Gong

    Corresponding author
    1. The author is from the University of Melbourne. He is grateful to Valdimir Atanasov, Bruce Grundy, Bob Officer, Chander Shekhar, Martin Walker (editor), and an anonymous referee for helpful comments. An earlier version of the paper, titled ‘Stock Exchange as a Monitor: The Australian Experience’ was presented at the Australian Graduate School of Management, Edith Cowan University, University of Western Australia, Melbourne Business School, 2001 FMA European Meetings, and the 13th Australasian Finance and Banking Conference in Sydney.
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  • The author also thanks Elizabeth Melville-Jones of the ASX for providing the institutional details. Finally, thanks to Laurel Chen for her outstanding research assistance and Sylvia Jones for editing.

* Address for correspondence: Ning Gong, Melbourne Business School, University of Melbourne, 200 Leicester Street, Carlton, VIC 3053, Australia. e-mail:


Abstract:  This paper examines a unique stock market monitoring program used by the Australian Stock Exchange (ASX). When the ASX observes unusual share price or trading volume changes of a listed company, it sends a letter demanding an explanation. Companies need to respond publicly to several stylized questions. Such public communications between the stock exchange and listed companies contain information. This paper documents how companies respond to the ASX inquiry and how the market reacts to the replies. It is found that some companies do release new information to the market when asked. After the firm's reply is posted, the average trading volume and the bid-ask spread are reduced, and in most cases, the share price is also stabilized with the following two exceptions: (1) The price will continue to rally on average if the company releases only partial information when questioned after a significant price jump; (2) The downward price trend will be reversed if the company states that no new information could explain the decline. Furthermore, there are statistically significant, positive abnormal returns for the first five trading days, which are not conditional upon the replies firms give to the ASX inquiries.