Market Microstructure and Securities Values: Evidence from the Tel Aviv Stock Exchange

Yakov Amihud, Haim Mendelson and Beni Lauterbach

New York University, Leonard N. Stern School Finance Department Working Paper Seires from New York University, Leonard N. Stern School of Business-

Abstract: This paper examines the value effects of improvements in the trading mechanism. Stocks on the Tel Aviv Stock Exchange were transferred gradually from a daily call auction to a mechanism where the call auction was followed by iterated continuous trading sessions. This event was associated with a positive and permanent price appreciation. The cumulative average market-adjusted return over a period that started five days prior to the announcement and ended 30 days after the stocks started trading by the new method was approximately 5.5%. In addition, we find positive liquidity externalities (spillovers) across related stocks, and improvements in the value discovery process due to the improved trading method. Finally, there was a positive association between liquidity gains and price appreciation. Our results suggest that improvements in market microstructure are valuable.

Date: 1997-10
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Journal Article: Market microstructure and securities values: Evidence from the Tel Aviv Stock Exchange (1997)
Working Paper: Market Microstructure and Securities Values: Evidence From the Tel Aviv Stock Exchange (1996)
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Persistent link: https://EconPapers.repec.org/RePEc:fth:nystfi:98-004

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