Efficiency of Price Discovery in Thinly Traded Stocks: Evidence from Dual Listings in Tel Aviv and the OTC

17 Pages Posted: 17 Jul 2015

See all articles by Shmuel Hauser

Shmuel Hauser

Ben-Gurion University of the Negev - School of Management; Government of the State of Israel - Israel Securities Authority

Azriel Levy

Hebrew University of Jerusalem; Bank of Israel

Date Written: 1998

Abstract

The increasing popularity of non-dealer security markets that offer automated, computer-based, continuous trading reflects the conventional wisdom that such markets are more efficient for all issues, large and small. This article uses a recent testing methodology to estimate the relative efficiency of discrete versus continuous trading regimes in the price discovery of thinly traded stocks. The empirical tests use over 9,000 transactions of dually listed stocks traded discretely on the Tel Aviv Stock Stock Exchange and continuously in the Over-The-Counter market in the U.S. It is shown that stock prices over-react to the arrival of new information and noise trading in both markets, but more so under continuous trading in the OTC market. It is also shown that continuous trading generates larger pricing errors and related return volatility.

Keywords: continuous trading; discrete trading; pricing efficiency; Tel Aviv Stock Exchange; trading mechanism

JEL Classification: G14, G15

Suggested Citation

Hauser, Shmuel and Levy, Azriel, Efficiency of Price Discovery in Thinly Traded Stocks: Evidence from Dual Listings in Tel Aviv and the OTC (1998). Multinational Finance Journal, Vol. 2, No. 2, p. 133-149, 1998, Available at SSRN: https://ssrn.com/abstract=2631520

Shmuel Hauser (Contact Author)

Ben-Gurion University of the Negev - School of Management ( email )

P.O. Box 653
Beer-Sheva 84105
Israel
+972 2 651 3939 (Phone)
+972 7 6472896 (Fax)

Government of the State of Israel - Israel Securities Authority

22 Kanfei Nesharim Street
Jerusalem 95464
Israel

Azriel Levy

Hebrew University of Jerusalem ( email )

Mount Scopus
Jerusalem, Jerusalem 91905
Israel

Bank of Israel

P.O. Box 780
Jerusalem, 91907
Israel

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
12
Abstract Views
492
PlumX Metrics