To read the full version of this content please select one of the options below:

Cross-sectional return patterns in New Zealand’s registered and OTC stock markets

Hamish Anderson (School of Economics & Finance, Massey University, Palmerston North, New Zealand)
Ben Marshall (School of Economics & Finance, Massey University, Palmerston North, New Zealand)
Xiao Wang (School of Economics & Finance, Massey University, Palmerston North, New Zealand)

Pacific Accounting Review

ISSN: 0114-0582

Publication date: 2 February 2015

Abstract

Purpose

This paper aims to examine whether the cross-sectional return patterns in New Zealand’s main stock market (NZSX) are also present in the alternative (NZAX) and over-the-counter (Unlisted) markets.

Design/methodology/approach

Cross-sectional regressions of monthly stock returns on well-known pricing factors including firm size, book-to-market (B/M) ratio, liquidity and past returns were run. The NZSX sample commenced in 1988 and continued through to 2011, while data are available for the Unlisted and NZAX markets from 2004 to 2011.

Findings

The pricing factors that are important in explaining returns in major international markets also influence returns on the NZSX. However, only B/M is consistently priced across all New Zealand stock exchanges, including the alternative NZAX and Unlisted markets. There is evidence of reversal in NZAX stocks, but liquidity effects are not consistent or pervasive in either market.

Practical implications

With B/M being the only consistently priced variable across all markets, investors in the NZAX and in particular Unlisted may be concerned with other risk factors. For example, the risks associated with differing levels of investor protection, corporate governance and disclosure may be of more concern to investors than pricing factors such as size, liquidity and past returns in these alternative trading platforms.

Originality/value

The paper examines cross-sectional return patterns of the NZAX and Unlisted stocks and is the first paper to jointly test the explanatory power of size, B/M, past returns and liquidity factors for NZSX stocks.

Keywords

Acknowledgements

This paper is based on Xiao Wang’s Master's research report. The authors thank the editor, Glenn Boyle, and two anonymous referees for many useful comments. However, all errors are our own.

Citation

Anderson, H., Marshall, B. and Wang, X. (2015), "Cross-sectional return patterns in New Zealand’s registered and OTC stock markets", Pacific Accounting Review, Vol. 27 No. 1, pp. 51-68. https://doi.org/10.1108/PAR-09-2012-0036

Publisher

:

Emerald Group Publishing Limited

Copyright © 2015, Emerald Group Publishing Limited