Investor protection and market reaction to unusual market activity replies

Chun-Teck Lye, Tuan-Hock Ng, Kwee-Pheng Lim and Chin-Yee Gan

International Journal of Emerging Markets, 2020, vol. 16, issue 8, 2034-2069

Abstract: Purpose - This study uses the unique setting of unusual market activity (UMA) replies to examine the market reaction and the effects of disclosure and investor protection amid information uncertainty. Design/methodology/approach - A total of 1527 hand-collected UMA replies from the interlinked stock exchanges of Indonesia, Malaysia, Thailand and Singapore for the period of 2015–2017 were analysed using event study and Heckman two-step methods with market and matched control firm benchmarks. Findings - The overall results support the uncertain information hypothesis. The UMA replies with new information were also found to reduce information uncertainty, but not information asymmetry, and they are complementary to investor protection in enhancing abnormal returns. The overall finding suggests that the UMA public query system can be an effective market intervention mechanism in improving information certainty and efficiency. Research limitations/implications - This study provides insight on the effects of news replies and investor protection on abnormal returns, and support for the uncertain information hypothesis. The finding is useful to policymakers and stock exchanges as they seek to understand how to alleviate investors' anxiety and to create an informationally efficient market. Nevertheless, this study is limited by the extensiveness of the hand-collected UMA replies and also the potential issue of simultaneity-induced endogeneity. Originality/value - This study uses UMA replies and cross-country data taking into account the effects of market surroundings such as information uncertainty and the level of investor protection on market reaction.

Keywords: Abnormal return; Bid-ask spread; Company disclosure; Market reaction; Uncertain information; Trading volume (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijoemp:ijoem-10-2019-0859

DOI: 10.1108/IJOEM-10-2019-0859

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