Trading behaviour of stocks added to New Zealand's NZSE40 index

Abstract

This paper looks at the addition of stocks to New Zealand's NZSE40 index and investigates whether price and volume effects support the price pressure hypothesis or the informational efficiencies described by Merton's attention hypothesis. Unlike the US experience, a description of trading on the New Zealand Stock Exchange includes: (1) mechanical index listing rules; (2) few index arbitrage opportunities; and (3) less liquid markets. The empirical results support the attention hypothesis and suggest informational efficiencies that lower a firm's cost of capital.