Asset Returns and the Listing Choice of Firms

42 Pages Posted: 3 Nov 2008

See all articles by Shmuel Baruch

Shmuel Baruch

University of Rome Tor Vergata, Department of Economics and Finance

Gideon Saar

Cornell University - Samuel Curtis Johnson Graduate School of Management

Multiple version iconThere are 3 versions of this paper

Date Written: November 2004

Abstract

We propose a mechanism that relates asset returns to the firm s optimal listing choice. The crucial element in our framework is not a difference in the structure or rules of the alternative markets, but a difference in the return patterns of the securities that are traded on these markets. We use a simple trading model with asymmetric information to show that a stock would be more liquid when it is listed on a market with similar securities, or securities with correlated payoff patterns. We empirically examine the implications of our model using NYSE and Nasdaq securities, and document that the return patterns of stocks listed on the NYSE indeed look different from the return patterns of Nasdaq stocks. Stocks that areeligible to list on another market but do not switch have return patterns that are similar to other securities on their own market and different from securities listed on the other market. We show that the return patterns of stocks that switch markets change in the two years prior to the move in the direction of being more similar to the stocks on the new market. Our results are consistent with the notion that managers choose the market on which to list to maximize the liquidity of their stocks.

Suggested Citation

Baruch, Shmuel and Saar, Gideon, Asset Returns and the Listing Choice of Firms (November 2004). NYU Working Paper No. FIN-04-005, Available at SSRN: https://ssrn.com/abstract=1294440

Shmuel Baruch (Contact Author)

University of Rome Tor Vergata, Department of Economics and Finance ( email )

Via di Tor Vergata
Rome, Lazio 00133
Italy

Gideon Saar

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

431 Sage Hall
Ithaca, NY 14853
United States
607-255-7484 (Phone)
607-255-5993 (Fax)

HOME PAGE: https://www.johnson.cornell.edu/Faculty-And-Research/Profile?id=gs25

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