Share Price Reaction to Public Announcements Emerging Markets: a Case of the Zimbabwe Stock Exchange Listed Companies

Abstract

On any Stock Exchange, share prices rise and fall depending, largely, on market forces. These market forces are determined by information dissemination to the market. There have been periods when the Zimbabwe Stock Exchange (ZSE) move drastically up and down, but without any apparent economic news or stimulus, therefore it has become hard to predict share prices or to explain changes in stock prices using fundamental news. This research examines movement of returns to a portfolio of stocks after public news about them is released. It also examines why other stocks move to high returns without identifiable public news. The intention of the methodology in this research was to measure the extent to which individuals and corporates regard the operations and reaction of the Zimbabwe Stock Exchange prices. Considering that there is limited comprehension of the stock exchange by the general masses, a sample was drawn from only a few knowledgeable individuals. Also, two portfolios of stocks with and without public news were analyzed for a period. Results show that there is a major difference between return patterns for the two portfolios. There is evidence of post-news movement, which supports the idea that investors react to information. This is strongest after good or bad news. There is also some evidence of reversal after extreme price movements that are unaccompanied by public news. The patterns are seen even after excluding earnings announcements, controlling for potential risk exposure, and other adjustments. There is also evidence that trading frictions, such as short-sale constraints, may play a role in the post news reaction pattern. It is therefore justified to conclude that share premium is not purely determined by the stock’s intrinsic value and that share prices are not always driven by market fundamentals.

Keywords: public, fundamentals, portfolio, risk