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Market Microstructure and Securities Values: Evidence from the Tel Aviv Stock Exchange
Yakov Amihud New York University - Stern School of Business Haim Mendelson Stanford Graduate School of Business Beni Lauterbach Technion-Israel Institute of Technology; Bar Ilan University - S. Daniel Abraham School of Business Adminstration October 1997 NYU Working Paper No. FIN-98-004 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. Working Paper Series Date posted: November 07, 2008 ; Last revised: December 16, 2008Suggested CitationContact Information
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