Liquidity,exchange listing,and common stock performance |
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Authors: | S Kerry Cooper John C Groth William E Avera |
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Institution: | 1. Associate Professor, Department of Finance, Texas A&M University, USA;2. Principle of Financial Concepts and Applications, Inc., Austin, Texas, USA |
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Abstract: | The liquidity of securities—the relationship between volume of trading and changes in market price—has won increasing recognition as an element of investment strategy in recent years. Relatively high liquidity is deemed to be a desirable characteristic of a stock, especially for the institutional investor, who typically trades in large volume. Thus, firms can generally be expected to seek means of enhancing the liquidity of their shares. One of the supposed means of accomplishing this is by listing one's stock on a national securities exchange. This paper examines the relationship of common stock liquidity to both exchange listing and price behavior during major up and down movements in the market. Our conceptual and empirical analyses indicate that liquidity is linked to price behavior; and we suggest that the view held by at least some corporate officers—that exchange listing increases liquidity—may be erroneous. More specifically, it appears that when the amount of firm capitalization is taken into account, exchange listing does not result in greater stock liquidity. |
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Keywords: | Address reprint requests to Dr Kerry Cooper Department of Finance College of Business Administration Texas A & M University College Station TX 77843-4218 USA |
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