Intraday Stock Price Effects of Ad Hoc Disclosures: The German Case

Abstract

This paper examines intraday stock price effects and trading activity caused by ad hoc disclosures in Germany. The evidence suggests that the observed stock prices react within 90 minutes after the ad hoc disclosures. Trading volumes take even longer to adjust. We find no evidence for abnormal price reactions or abnormal trading volume before announcements. The bigger the company that announces an ad hoc disclosure, the less severe is the abnormal price effect following the announcement. The number of analysts is negatively correlated to the trading volume effect before the ad hoc di sclosure. The higher the trading volume on the last trading day before the announcement, the greater is the price effect after the ad hoc disclosures and the greater the trading volume effect.Keywords: ad hoc disclosure rules, intraday stock price adjustments, market efficiency JEL-Classification: G14, K22 1 IntroductionSince early 1995, companies whose shares are traded officially in Germany have been obliged to publish without delay all newly available information which may be of relevance to the price of their stock. This regulation was introduced to prevent insider conflicts caused by asymmetrical information supply. Furthermore, it was believed that a prompt supply of i nformation would increase the amount of information available to the capital market, thus making it easier to perform fair company evaluations.According to the theory of information efficiency, security prices should immediately reflect all information available to the efficient capital market (Fama, 1970). As positive information and trading cost can be expected, this extreme efficiency hypothesis cannot be held (Fama, 1991). This study focuses on the information content provided by ad hoc disclosures pursuant to section 15 of the German Securities Trading Law (WpHG). Therefore, an event study is performed in order to prove the existence of abnormal returns and abnormal trading activity prior to and after the publication date of the announcements. If abnormal returns and trading volume can be observed, the intraday speed of stock price adjustments should provide evidence regarding the market and informa tion efficiency. Furthermore, anticipation effects or insider trading activity can be proven if significant market effects can be observed prior to the announcement date. Consequently, the period following and prior to the publication, for which significant abnormal returns can be observed, has to be analyzed.To date, there have been four empirical studies analyzing the German capital market between 1995 and 1997 which concentrate on daily price effects (Nowak, 2001;Oerke, 1999;and Röder, 1999). All of these studies examine the existence of significant abnormal returns before, during and after the announcement date. Their research goal is to prove the existence of insider trading prior to the announcement date, an efficient market reaction on the announcement date and pheno mena such as herding after the announcement. All of these studies concentrate on ...