Article1994

The Effect of Market Segmentation and Illiquidity on Asset Prices: Evidence from Exchange Listings

411 citations0/0 files storedThe Journal of Finance

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

Abstract

ABSTRACT This article documents the effect on share value of listing on the New York Stock Exchange and reports the results of a joint test of Merton's (1987) investor recognition factor and Amihud and Mendelson's (1986) liquidity factor as explanations of the change in share value. We find that during the 1980s stocks earned abnormal returns of 5 percent in response to the listing announcement and that listing is associated with an increase in the number of shareholders and a reduction in bid‐ask spreads. Cross‐sectional regressions provide support for both investor recognition and liquidity as sources of value from exchange listing.

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References

1987A Simple Model of Capital Market Equilibrium with Incomplete Information 1986Asset pricing and the bid-ask spread 1969The Adjustment of Stock Prices to New Information 2003The Adjustment of Stock Prices to New Information 1968The Cost of Transacting 1983Transaction costs and the small firm effect 1989The Effects of Beta, Bid-Ask Spread, Residual Risk, and Size on Stock Returns 1983Transaction costs and the small firm effect

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