Journal of Regulatory Economics

, Volume 31, Issue 3, pp 289–312 | Cite as

Deregulation, news releases, and price discovery

  • Manfen W. Chen
  • Rohan Christie-David
  • William T. Moore
Original Article


We hypothesize that the firm’s regulatory environment influences the sensitivity of its equity value to information. Using intraday stock price data of utilities operating in differing regulatory environments we test for systematic differences between the responsiveness of stock prices of utility firms operating in deregulated and regulated environments to a common information set. Our findings reveal sharp differences in responses, with those of utilities operating in deregulated environments the strongest, and the responses of utilities in highly regulated environments the weakest. While the evidence supports our hypothesis, in a broader sense, the evidence suggests that deregulation aids in the process of price discovery. We also find evidence that suggests that deregulation, per se, does not lead to higher stock price volatility.


Regulatory environment Price discovery Utility industry Macroeconomic news 

JEL Classifications

G14 G18 L51 L94 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Almeida A., Goodhart C., Payne R. (1998). The effects of macroeconomic news on high frequency exchange rate behavior. Journal of Financial and Quantitative Analysis 33, 383-408CrossRefGoogle Scholar
  2. Amoako-Adu B., Smith B. (1995). The wealth effects Of deregulation of Canadian financial institutions. Journal of Banking and Finance 19, 1211–1236CrossRefGoogle Scholar
  3. Barlow M. (2002). A diffusion model for electricity prices. Mathematical Finance 12, 287–298CrossRefGoogle Scholar
  4. Blacconiere W., Johnson M., Johnson M. (2000). Market valuation and deregulation of electric utilities. Journal of Accounting and Economics 29, 231–160CrossRefGoogle Scholar
  5. Borenstein S., Bushnell J., Stoft S. (2000). The competitive effects of transmission capacity in a deregulated electricity industry. Rand Journal of Economics 31, 294–325CrossRefGoogle Scholar
  6. Brown M., Forsythe A. (1974). Robust tests for the equality of variances. Journal of the American Statistical Association 69, 364–367CrossRefGoogle Scholar
  7. Center for the Advancement of Energy Markets (CAEM). (2001). Retail Energy Deregulation (RED) Index, (2nd ed.).Google Scholar
  8. Conover W., Johnson M., Johnson M. (1981). A comparative study of tests for homogeneity of variances, with applications to the outer continental shelf bidding data. Technometrics, 23, 351–361CrossRefGoogle Scholar
  9. Delmas M., Tokat Y. (2005). Deregulation process, governance structures and efficiency: The U.S. Electric Utility Sector. Stratrgic Management Journal 26, 441–460CrossRefGoogle Scholar
  10. Der G., Everitt B. (2001). A handbook of statistical analysis using SAS. Boca Raton, FL: Chapman and Hall/CRC PressGoogle Scholar
  11. Ederington L., Lee J. (1993). How markets process information: News releases and volatility. Journal of Finance 48, 1161–1191CrossRefGoogle Scholar
  12. Ederington L. Lee J. (1995). The short-run dynamics of the price adjustment to new information. Journal of Financial and Quantitative Analysis 30, 117–134CrossRefGoogle Scholar
  13. Glosten L., Jagannathan R., Runkle D. (1993). On the relation between the expected value and the volatility of the nominal excess return on stocks. Journal of Finance 48, 1779–1801CrossRefGoogle Scholar
  14. Green R. (1996). Increasing competition in the British Electricity spot market. Journal of Industrial Economics 44, 205–216CrossRefGoogle Scholar
  15. Hausman J., Lo A., MacKinlay C. (1992). An ordered probit analysis of transaction stock prices. Journal of Financial Economics 31, 319–379CrossRefGoogle Scholar
  16. Holden, B. (1997). California electric utility stocks recover from Jolt. Wall Street Journal, Section B, 6, February 19.Google Scholar
  17. Joskow P. (1997). Restructuring, competition, and regulatory reform in the U.S. electricity sector. Journal of Economic Perspectives 11, 119–138Google Scholar
  18. Kahn A. (1988). Surprises of airline deregulation. American Economic Review 78, 316–322Google Scholar
  19. Kareken J. (1983). The first step in bank deregulation: What about the FDIC?. American Economic Review 73, 198–204Google Scholar
  20. Lee C., Ready M. (1991). Inferring trade direction from intraday data. Journal of Finance 46, 733–746CrossRefGoogle Scholar
  21. Levene H. (1960). Robust tests for equality of variances. In Olkin I.(ed) Contributions to probability and statistics. Palo Alto, California: Stanford University Press, pp. 278–292Google Scholar
  22. Lockwood L., Linn S. (1990). An examination of stock market return volatility during overnight and intraday periods 1964–1989. Journal of Finance 45, 591–602CrossRefGoogle Scholar
  23. Pearce D., Roley V. (1985). Stock prices and economic news. Journal of Business 58, 49–67CrossRefGoogle Scholar
  24. The Roots of the Crisis – A Flawed Deregulation Scheme? " PBS, download: Dec. 26, 2001 Scholar
  25. Value Line Investment Survey. (2001). Vol. 56.Google Scholar
  26. Value Line Investment Survey. (1994). Vol 49.Google Scholar

Copyright information

© Springer Science+Business Media, LLC 2007

Authors and Affiliations

  • Manfen W. Chen
    • 1
  • Rohan Christie-David
    • 2
  • William T. Moore
    • 3
  1. 1.Department of Economics and Finance, College of BusinessUniversity of Southern IndianaEvansvilleUSA
  2. 2.Department of Finance, College of BusinessUniversity of LouisvilleLouisvilleUSA
  3. 3.Office of the ProvostUniversity of South CarolinaColumbiaUSA

Personalised recommendations