An evaluation of the information content of the news event of rate relief application upon utility stock prices

Abstract

The general objective of this study was to investigate the rapidity of investor reaction towards utility stock price changes as measured by secular utility stock price patterns. The news events of utility companies filing for rate relief with their public utility commission and the subsequent commission decisions after open hearings were defined as the independent variables. The interaction of these events upon the stock prices, the dependent variable comprised the problem of the study.

The filing and decision dates were obtained by means of the questionnaires and daily stock prices from published sources. The sample was comprised of thirty-five firms with seventy-seven cases. Filing and decision dates were defined as "action" dates.

Lintener's market model was used to separate the systematic and unsystematic components of rate of return. The independent variable is unsystematic in nature. The unsystematic component of rate of return was tested by a t-test for the extent of price deviation from the action date price.

The results did not show statistically significant differences from the stock price before or after the event when compared to the stock price on the day of the event. The inference one can draw from the results is that these events did not have significant impact upon the stock price, although the stock price pattern of companies receiving a decision did deviate noticeable from their original price levels.