Liquidity and Stock Exchange Listing

This study examines the pattern of stock price behavior for a sample of 71 firms that moved from NASDAQ and NASDAQ/NMS to the American Stock Exchange (AMEX) between 1982 and 1987. The study tests the liquidity gains hypothesis, which states that investors expect liquidity gains for the less liquid over-the-counter stocks but not for their more liquid counterparts after their listing on the AMEX. The results support the hypothesis by showing a significant difference between the two groups of stocks on the day the AMEX announced approval of the listing. Thus, companies with low liquidity are the largest beneficiaries of listing. The evidence provides little support for the anomalous negative pattern of returns during the post-listing period reported in previous studies.     

The Impact of Company Pre-Listing Attributes on the Market Reaction to NYSE Listings

This study examines the market behavior of common stocks transferring from the NASDAQ stock market to the New York Stock Exchange from 1982 to 1989. Using event study methodology, the study tests the joint liquidity-signaling hypothesis that a stock's pre-listing liquidity and earnings per share (EPS) growth (a proxy for signaling) affect the market behavior around NYSE listings. The results show that the market responds more favorably to stocks with low liquidity and high signaling than to stocks with high liquidity and low signaling before listing. Stocks in the former group do not have an anomalous pattern of negative post-listing abnormal returns.     

The Long-Run Negative Drift of Post-Listing Stock Returns

After firms move trading in their stock to the American or New York Stock Exchanges, stock returns are generally poor. Although many listing firms issue equity around the time of listing, post-listing performance is not entirely explained by the equity issuance puzzle. Similar to the conclusions regarding other long-run phenomena, poor post-listing performance appears related to managers timing their application for listing. Managers of smaller firms, where initial listing requirements may be more binding, tend to apply for listing before a decline in performance. Poor post-listing performance is not observed in larger firms.     

The Operating Performance of Firms that Switch Their Stock Listings

In this article we examine the operating performance of stocks that switch from NASDAQ to the American Stock Exchange (AMEX) or the New Stock Exchange (NYSE) and from AMEX to the NYSE. Specifically, we investigate whether post‐listing operating performance is consistent with the reported negative long‐term drift of post‐listing stock returns and whether there is evidence of self‐selection of the listing time. We find evidence of negative post‐listing changes in operating return on assets and sales, which, on a match‐adjusted basis, are significant for the relatively small NASDAQ stocks switching to AMEX. We also find evidence that firms self‐select the time of listing changes.     

THE INFORMATIONAL VALUE OF LISTING ON THE NEW YORK STOCK EXCHANGE

In this paper, the authors test market reaction to the listing of a stock on the New York Stock Exchange independently from other attendant news and test the hypothesis that listing has different informational value for stocks that have performed differently in the prelisting period. Their findings support the argument that listing conveys positive information. Listing is observed to be of most value for firms with ambiguous earnings performance.     

Market Response to Liquidity Improvements: Evidence from Exchange Listings

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.     

EXCHANGE LISTINGS AND DELISTINGS: THE ROLE OF INSIDER INFORMATION AND INSIDER TRADING

We examine whether insiders systematically exploit their private information before exchange listings and delistings they are likely to know about before outsiders/investors. Analyzing a comprehensive sample of over-the-counter (OTC) firms, which listed on the New York Stock Exchange (NYSE) or American Stock Exchange (AMEX) during 1977–93, we find evidence that insiders act on their private information of an impending exchange listing by purchasing or postponing the sale of stock on private account. For firms delisting from the NYSE or AMEX, we find that insiders of these firms sell stock on private account before delisting. Overall, the evidence indicates that insiders act on their private information before exchange listings and delistings.     

IPO Listings: Where and Why?

According to most research, firms benefit from being listed on the New York Stock Exchange (NYSE). Nevertheless, 224 of 640 firms that went public from 1993 through 2000 and were eligible for a NYSE listing chose to list their stock on Nasdaq. We hypothesize that this choice may be related to Securities and Exchange Commission (SEC) Rule 144. The rule regulates the sale of restricted stock by limiting the amount of unregistered stock that can be sold by an individual. We investigate the determinants of post-IPO sales of restricted stock, examine IPO firms' listing choices, and find evidence consistent with firms selecting Nasdaq to reduce the effect of the limits on selling restricted stock imposed by the SEC's Rule 144. Venture capitalists play an important role in this listing decision.     

INTERNATIONAL TRANSFER OF PRICING INFORMATION BETWEEN DUALLY LISTED STOCKS

International multiple listing offers a unique opportunity to study the efficiency of information transmission across national markets. The knowledge gained from observing a stock of the same company priced in multiple markets differs from what may be gained from observing relations across markets of aggregate price indices. We investigate five companies based in Israel whose stocks are listed on both the Tel Aviv Stock Exchange and NASDAQ. Our empirical tests of causality in price changes use the side-by-side Box-Jenkins ARIMA models and the Sims VAR model. Overall, the results show that price causality in dually listed stocks is unidirectional from the domestic market to the foreign market.     

Components of execution costs: evidence of asymmetric information at the Mexican Stock Exchange

Immediate execution costs for stocks trading at the auction market of the Mexican Stock Exchange (MSE) are five times higher than those for similar NYSE stocks. The source of the trading cost differential is asymmetric information. Mexican stocks are associated with a substantially larger asymmetric information component of the spread (2.76 cents per dollar) than their matched NYSE counterparts (0.28 cents). Results indicate that differences in asymmetric information are not related to stock characteristics, number and sophistication of security analysts, listing and disclosure requirements, ownership restrictions, and voting rights.     

Why Do Companies List Shares Abroad?: A Survey of the Evidence and Its Managerial Implications

The purpose of this monograph is to survey the academic literature on the economic implications of the corporate decision to list shares on an overseas stock exchange. My focus is on the valuation and liquidity effects of the listing decision, and the impact of listing on the company's global risk exposure and its cost of equity capital. The evidence shows:
(1) share prices reacts favorably to cross-border listings in the first month after listing;
(2) post-listing price performance up to one year is highly variable across companies depending on the home and listing market, its capitalization, capital-raising needs and other company-specific factors;
(3) post-listing trading volume increases on average, and, for many issues, home-market trading volume increases also;
(4) liquidity of trading in shares improves overall, but depends on the increase in total trading volume, the listing location and the scope of foreign ownership restrictions in the home market;
(5) domestic market risk is significantly reduced and is associated with only a small increase in global market risk and foreign exchange risk, which can result in a net reduction in the cost of equity capital of about 126 basis points;
(6) American Depositary Receipts represent an effective vehicle to diversify U.S.-based investment programs globally;
(7) stringent disclosure requirements are the most important impediment to cross-border listings.     

MARKET REACTION TO NYSE LISTINGS: TESTS OF THE MARKETABILITY GAINS HYPOTHESIS

This study examines the market reaction to listing on the New York Stock Exchange (NYSE). The marketability gains hypothesis states that investors expect liquidity gains for the less liquid over-the-counter (OTC) stocks but not for their liquid counterparts after their listing on the NYSE. The hypothesis is supported even after accounting for other firm-specific news releases. Stocks with low liquidity on the OTC exhibit a positive reaction, whereas stocks with high liquidity show a non-positive market reaction around the announcement of the listing application. The findings imply that the two different marketplaces, NYSE and OTC, are suitable for stocks with different liquidity characteristics.     

Extreme volumes and expected stock returns: Evidence from China's stock market

We examine the relation between extreme trading volumes and expected returns for individual stocks traded on the Shanghai Stock Exchange and the Shenzhen Stock Exchange over the July 1994–December 2000 interval. Contrasted with the evidence obtained from the US data [J. Finance 56 (2001) 877], our results show that stocks experiencing extremely high (low) volumes are associated with low (high) subsequent returns. Moreover, this extreme volume–return relation significantly co-varies with security characteristics like past stock performance, firm size, and book-to-market values. In particular, stocks with extreme volumes are related to poorer performance if they are past winners, large firms, and glamour stocks than if they are past losers, small firms, and value stocks, respectively. These results are robust to both daily and weekly samples as well as stock exchange sub-samples. Although the liquidity premium hypothesis of Amihud and Mendelson [J. Financ. Econ. 17 (1986) 223] provides a partial explanation for the extreme volume–return relation, our results fit better the behavioral hypothesis of Baker and Stein [J. Financ. Mark. 7 (2004) 271].     

STOCK PRICE AND DEGREE OF NEGLECT AS DETERMINANTS OF STOCK RETURNS

In prior research the neglected firm effect persists even after controlling for firm size. Several recent studies show that the size effect is a stock price effect. In the present study we investigate whether excess returns on neglected stocks are a manifestation of a stock price effect. Although material evidence supporting an independent neglected firm effect is still found, results are much weaker than in prior studies. Examining a large sample of New York Stock Exchange and American Stock Exchange stocks from 1977 to 1988, we find that both January and non-January months do not have a statistically significant neglect effect after controlling for a price effect.     

Trading Costs and Exchange Delisting: The Case of Firms that Voluntarily Move from the American Stock Exchange to the Nasdaq

We examine 47 stocks that voluntarily left the American Stock Exchange from 1992 through 1995 and listed on the Nasdaq. We find that both effective and quoted spreads increase by about 100 percent after listing on the Nasdaq. These spread changes are consistent across stocks. In contrast, excess returns are positive when firms announce a switch from The American Stock Exchange to the Nasdaq. We are unable to explain this apparent contradiction.     

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

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.     

AN EVALUATION OF THE PERFORMANCE OF PORTFOLIOS SELECTED FROM VALUE LINE RANK ONE STOCKS: 1976–1982

In this study, the performance of portfolios selected from among Value Line rank one stocks is compared with portfolios consisting of randomly selected New York Stock Exchange and American Stock Exchange stocks. Results indicate that before considering transactions costs, active traders who invest in Value Line rank one stocks can earn positive excess returns. However, after considering transaction costs, neither active traders nor passive investors in rank one stocks can earn returns that are statistically greater than returns achieved by portfolios of randomly selected stocks. These results are not sensitive to variations in portfolio size.     

The performance of unseasoned new equity issues-cum-stock exchange listings in Australia

The market behaviour of unseasoned new issues of common stock at the time of initial listing and during the period following initial listing on the Sydney Stock Exchange is investigated. The results indicate large and widespread initial returns to the new issue-cum-listing process. The average aftermarket performance was negative but was not statistically significant. We suggest that the joint process of initial issue-cum-listing in Australia, the listing requirements of the Australian Associated Stock Exchanges and the vesting of allocation rights to the issue in the broker, together with barriers to entry to stockbroking in Australia, provided the market structure which facilitated underpricing of the new issues.     

Valuation effects of international stock exchange listings

A comprehensive data set consisting of 346 U.S. firm stock listings on ten different stock exchanges is examined in order to determine the valuation consequences of listing on a foreign stock exchange. For the sample of U.S. firms listing abroad, abnormal returns in U.S. trading were: (1) positive around the date of acceptance on the foreign exchange; (2) negative on the first trading day; and (3) negative in the post-listing period for firms listing on the Tokyo and Basel exchanges. Tests for the equality of stock return variances between event periods and market model estimation periods failed to reveal a definitive impact.     

Dual Domestic Listing, Market Structure and Shareholder Wealth

This paper examines the impact of dual domestic listing of common stocks on shareholder wealth. The sample contains 137 AMEX- and NYSE-listed companies that dually listed their common stocks on the Pacific and Midwest Stock Exchanges between 1984 and 1988. Because the sample stocks do not have unlisted trading privileges, dual listing changes the market structure in which the stocks traded. Changes in market structure may affect stock returns through the liquidity services provided by the competing markets and through the possible nonhomogeneous clientele across markets. Using standard event methodology to examine stock market behavior around dual listing shows that the net effect of dual listing on returns is negative. Such negative returns suggest that corporate managers have reasons for dual domestic listing other than increasing shareholder wealth.