Liquidity and Stock Exchange Listing

Richard B Edelman and H Kent Baker

The Financial Review, 1990, vol. 25, issue 2, 231-49

Abstract: 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 gross 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 suport for the anomalous negative pattern of returns during the post-listing period reported in previous studies. Copyright 1990 by MIT Press.

Date: 1990
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