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

37 Pages Posted: 7 Nov 2008

See all articles by Yakov Amihud

Yakov Amihud

New York University - Stern School of Business

Haim Mendelson

Stanford University - Stanford Graduate School of Business

Beni Lauterbach

Bar-Ilan University - Graduate School of Business Administration; European Corporate Governance Institute (ECGI)

Date Written: October 1997

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.

Suggested Citation

Amihud, Yakov and Mendelson, Haim and Lauterbach, Beni, Market Microstructure and Securities Values: Evidence from the Tel Aviv Stock Exchange (October 1997). NYU Working Paper No. FIN-98-004, Available at SSRN: https://ssrn.com/abstract=1296396

Yakov Amihud (Contact Author)

New York University - Stern School of Business ( email )

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Haim Mendelson

Stanford University - Stanford Graduate School of Business ( email )

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HOME PAGE: http://https://www.gsb.stanford.edu/faculty-research/faculty/haim-mendelson

Beni Lauterbach

Bar-Ilan University - Graduate School of Business Administration ( email )

Ramat Gan
Israel

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
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1000 Brussels
Belgium

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