Illuminating the OTC Markets: The Impact of Public Disclosures on Trading Dynamics

Abstract

This study examines market reactions to SEC disclosures in the U.S. over-the-counter (OTC) equity market, where public information is often limited. Our findings reveal that OTC securities exhibit stronger and more persistent reactions to disclosures compared to exchange-traded securities, underscoring the critical role of transparency in less regulated markets. Despite heightened volatility, bid-ask spreads in the OTC Market remain stable, suggesting distinct market dynamics. These results provide timely insights for regulators and managers navigating the evolving landscape of capital raising outside traditional exchanges, especially under new SEC regulations and reporting standards.

Keywords: SEC Filings, over-the-counter (OTC) markets, public disclosures, Market Efficiency, Information asymmetry, trading dynamics