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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 (School of Mathematics and Applied Statistics, University of Wollongong, Wollongong, Australia)
Andrew C. Worthington (Department of Accounting, Finance and Economics, Griffith University, Brisbane, Australia)
David A. Griffiths (School of Mathematics and Applied Statistics, University of Wollongong, Wollongong, Australia)
Dionigi Gerace (School of Accounting and Finance, University of Wollongong, Wollongong, Australia)

Journal of Financial Regulation and Compliance

ISSN: 1358-1988

Article publication date: 25 July 2008

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.

Keywords

Citation

O'Shea, P.D., Worthington, A.C., Griffiths, D.A. and Gerace, D. (2008), "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", Journal of Financial Regulation and Compliance, Vol. 16 No. 3, pp. 261-273. https://doi.org/10.1108/13581980810888877

Publisher

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Emerald Group Publishing Limited

Copyright © 2008, Emerald Group Publishing Limited