Adverse Selection Costs and Trading Volume Surrounding Announcements in Australia

Posted: 2 Aug 2013

See all articles by Xinwei Zheng

Xinwei Zheng

Department of Finance

Wei Chi

Monash University - Department of Accounting

Xueli Tang

Deakin University

Date Written: August 17, 2011

Abstract

Abnormal trading volumes around scheduled and unscheduled announcements are investigated and Australian stocks are used to establish whether market characteristics affect trading behavior around announcements. In contrast to the results of earlier studies which mainly focus on the U.S. market, abnormal trading volumes do not occur on the Australian Securities Exchange (ASX) before either scheduled or unscheduled announcements, but, as expected, increase on and after scheduled and unscheduled announcements. Adverse selection costs increase trading volumes when unscheduled announcements are made, but has no effect after scheduled announcements. Failure to adjust for the correlation between corporate events results in abnormal trading volumes being detected prior to announcements.

Keywords: trading volume, information asymmetry, PIN, scheduled and unscheduled announcements

JEL Classification: G14, G15

Suggested Citation

Zheng, Xinwei and Chi, Wei and Tang, Xueli, Adverse Selection Costs and Trading Volume Surrounding Announcements in Australia (August 17, 2011). Available at SSRN: https://ssrn.com/abstract=1911028 or http://dx.doi.org/10.2139/ssrn.1911028

Xinwei Zheng (Contact Author)

Department of Finance ( email )

221 Burwood Highway
Burwood, Victoria 3125
Australia

Wei Chi

Monash University - Department of Accounting ( email )

Building 11E
Clayton, Victoria 3800
Australia

Xueli Tang

Deakin University ( email )

75 Pigdons Road
Victoria, Victoria 3216
Australia

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