Article2000

Market Response to Liquidity Improvements: Evidence from Exchange Listings

Elyas Elyasiani · Shmuel Hauser · Beni Lauterbach

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Financial Markets and Investment Strategies Corporate Finance and Governance Financial Analysis and Corporate Governance

Abstract

Abstract The study examines a sample of 895 stocks that moved from Nasdaq to the New York Stock Exchange or to the American Stock Exchange (Amex) between 1971 and 1994. We show how various measures of liquidity such as the bid‐ask spread, trading volume, and stock price precision improve in somewhat different ways upon transfer to NYSE (Amex). We also find that reductions in trading costs (percentage spread) and in pricing error volatility (Hasbrouck's σ5) can explain most of stock market's positive response to exchange listing. Thus, liquidity has many facets and cannot be represented by the bid‐ask spread alone.

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References

1986Asset pricing and the bid-ask spread 1996Market microstructure and asset pricing: On the compensation for illiquidity in stock returns 1986Do Demand Curves for Stocks Slope Down?1998Liquidity and stock returns: An alternative test 1996Commonality in the determinants of expected stock returns 1986Price and Volume Effects Associated with Changes in the S&P 500 List: New Evidence for the Existence of Price Pressures 1996Dealer versus auction markets: A paired comparison of execution costs on NASDAQ and the NYSE 1997Market microstructure and securities values: Evidence from the Tel Aviv Stock Exchange

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2006Asset Returns and the Listing Choice of Firms 2005The contribution of market makers to liquidity and efficiency of options trading in electronic markets 2003Trading costs, investor recognition and market response: An analysis of firms that move from the Amex (Nasdaq) to Nasdaq (Amex)

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