Efficiency of Price Discovery in Thinly Traded Stocks: Evidence from Dual Listings in Tel Aviv and the OTC

Shmuel Hauser and Azriel Levy
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Shmuel Hauser: Ben Gurion Univ. of the Negeve and Israel Securities Authority, Israel
Azriel Levy: Bank of Israel and the Hebrew University, Israel

Multinational Finance Journal, 1998, vol. 2, issue 2, 133-149

Abstract: The increasing popularity of non-dealer security markets that offer automated, computer-based, continuous trading reflects the conventional wisdom that such markets are more efficient for all issues, large and small. This article uses a recent testing methodology to estimate the relative efficiency of discrete versus continuous trading regimes in the price discovery of thinly traded stocks. The empirical tests use over 9,000 transactions of dually listed stocks traded discretely on the Tel Aviv Stock Stock Exchange and continuously in the Over-The-Counter market in the U.S. It is shown that stock prices over-react to the arrival of new information and noise trading in both markets, but more so under continuous trading in the OTC market. It is also shown that continuous trading generates larger pricing errors and related return volatility.

Keywords: continuous trading; discrete trading; pricing efficiency; Tel Aviv Stock Exchange; trading mechanism (search for similar items in EconPapers)
JEL-codes: G14 G15 (search for similar items in EconPapers)
Date: 1998
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:mfj:journl:v:2:y:1998:i:2:p:133-149

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