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Does Market Structure Affect the Immediacy of Stock Price Responses to News?

Ronald W. Masulis
Vanderbilt University - Owen Graduate School of Management; Vanderbilt University - School of Law

Lakshmanan Shivakumar
London Business School

Journal of Financial and Quantitative Analysis, Vol. 37, No. 4, pp. 617-648, 2002

Abstract:
This study uses transactions data to compare the speed of price adjustments to seasoned equity offering announcements by NYSE/AMEX and NASDAQ stocks. We find that price adjustments following offering announcements are significantly faster on NASDAQ than on the NYSE/AMEX and that the difference in reaction times can be as much as one hour. This result is not due to differences in issuer characteristics or the size of announcement effects across the markets. Further analysis suggests that the faster price reaction of NASDAQ stocks is due to several differences in market structure. We find evidence that greater risk-taking by NASDAQ dealers, more rapid electronic order execution on NASDAQ, a more potent information trading threat (SOES bandits) on NASDAQ, stale limit orders on the NYSE/AMEX and a less efficient price discovery mechanism at the open of the NYSE/AMEX, all contribute to more rapid NASDAQ stock price adjustments.

Keywords: Price adjustment, Market structure, Equity Offering Announcements

Accepted Paper Series

Date posted: March 26, 2002 ; Last revised: July 28, 2006

Suggested Citation

Masulis, Ronald W. and Shivakumar, Lakshmanan, Does Market Structure Affect the Immediacy of Stock Price Responses to News?. Journal of Financial and Quantitative Analysis, Vol. 37, No. 4, pp. 617-648, 2002. Available at SSRN: http://ssrn.com/abstract=296482

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Contact Information

Lakshmanan Shivakumar (Contact Author) London Business School ( email ) Regent's Park London NW1 4SA United Kingdom +44 20 7000 8115 (Phone) +44 20 7000 8101 (Fax) HOME PAGE: http://faculty.london.edu/lshivakumar/
Ronald W. Masulis Vanderbilt University - Owen Graduate School of Management ( email ) 401 21st Avenue South Nashville, TN 37203 United States 615-322-3687 (Phone) 615-343-7177 (Fax)
Vanderbilt University - School of Law 131 21st Avenue South Nashville, TN 37203-1181 United States