Stock Exchange Listings and Securities Returns

Louis K. W. Ying, Wilbur G. Lewellen, Gary G. Schlarbaum and Ronald C. Lease

Journal of Financial and Quantitative Analysis, 1977, vol. 12, issue 3, 415-432

Abstract: The broad import of the evidence is that the application and qualification by a firm for listing on one of the two major American securities exchanges did, at least during the years encompassed by our investigation, constitute an event with which were associated abnormal positive investment returns on the shares involved. Even though a portion of those returns seem subsequently to have been surrendered, the initial net effect from application through listing date was quite substantial, and the later correction thereto was much more modest. The average combined impact visible in Table 3 during the six-month period beginning with the listing application, for example, was a net positive annualized return approximately 17 percent above that enjoyed concurrently by the general run of comparable-systematic-risk securities in the market. The explicit consideration of such risk distinguishes the present investigation from earlier studies in the area [7] [8] [10] [12] [13] [18].On balance, then, it appears not unreasonable to conclude that listing did indeed “have value” for the companies examined. While one could argue that it was, intrinsically, the corporate developments (and the dissemination of the news thereof) which led to listing that were the real sources of value, the observed concentration of excess returns in the close proximity of the various application and listing dates would suggest that those actions provided useful market signals which did, in themselves, have a detectable favorable payoff—perhaps if only by way of accelerating the investment community's appreciation of the improvement in the applying firm's underlying operating circumstances. We interpret the evidence as supportive of that hypothesis.The implications of the same evidence for questions of market efficiency, however, are somewhat more ambiguous. There would seem, as noted, to be in the data indications of certain possible information-response time lags that are not totally consistent with efficiency; and there is an apparent systematic initial price overreaction to application-cum-listing which is later remedied. Transactions costs, on the other hand, have not been considered here, and these clearly would impede the adjustment process by raising the threshold for investor action. Despite some cause for suspicion, therefore, a definitive judgment about efficiency must await further investigation.

Date: 1977
References: Add references at CitEc
Citations: View citations in EconPapers (19)

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cup:jfinqa:v:12:y:1977:i:03:p:415-432_02

Access Statistics for this article

More articles in Journal of Financial and Quantitative Analysis from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().